Assume an economy is at a full-employment equilibrium to start. Then if war in Ukraine leads to higher prices of oil, would this, ceteris paribus, be reflected as a change in aggregate demand or a change in aggregate supply? Explain. Be sure to clearly identify a textbook factor of AD or AS- that is causing this change. Would this change be an increase or decrease? Explain. Would this change result in the economy moving to a new short-run, below or above full-employment equilibrium? Explain. What do you predict will happen in the short-run to the equilibrium price level, the level of Real GDP and employment in the economy?
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