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Suppose again that oil prices increase. This has two effects:

(a) firms' costs jump up and

(b) because more of consumers' income goes to pay for oil imports, there is less to spend on U.S. goods.

[We emphasized (a) but ignored (b) in the chapter.]

Assume the Fed holds the real interest rate constant.

Show what happens to the AE and Phillips curves and to output and inflation.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91977543

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