An oil cartel effectively

An oil cartel effectively

An oil cartel effectively increases the price of oil by 100 percent, leading to an adversesupply shock in both Country A and Country B. Both countries were in long-runequilibrium at the same level of output and prices at the time of the shock. The centralbank of Country A takes no stabilizing-policy actions. After the short-run impacts of theadverse supply shock become apparent, the central bank of Country B increases themoney supply to return the economy to full employment.a. Describe the short-run impact of the adverse supply shock on prices andoutput in each country.b. Compare the long-run impact of the adverse supply shock on prices andoutput in each country.

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