Question

In the early 2000s, oil prices were rising because of concern about the Iraqi War, along with rapid growth in demand in the Far East. Prices eventually reached over $100 a barrel. How would most economists predict these high prices should affect the U.S. economy in terms of the AD/AS model

Answer 1

If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level fall by 3 percent.