This week's topic is the impact of the increase in the supply of domestic natural gas and oil from the fracking boom. The topic is NOT the pros and cons of fracking per se. So do not discuss that. Rather the purpose is to better understand the impact on the US Aggregate Supply from a higher supply of energy and the lower energy prices that follow an increase in the supply of energy. Since energy is an input into most all production and transportation, changes in energy prices ripple through the economy and impact prices in all sectors of the economy.

1. What is the most likely impact on energy prices and the American Aggregate Supply from fracking?

2. Read, "Fracking" Transforms Energy Markets in the United States, pages 530 and 531 in Money, Banking and Financial System Second Edition. Illustrate through discussion of how the AS-AD graph would change (you do not have to draw the graphs, just refer to the ones in the text). How do these changes impact the American economy?