Answer to Question #158069 in Macroeconomics for atir ahmed

Question

Due to COVID-19 situations the oil prices fall in international market. Let’s assume that output starts at its natural level.

a.     What happens to the Pakistan’s economy (output and price) in the short run? Explain your answer using AS-AD graphs. (2.5 Marks, Maximum 150 words)

b.     What happens to Pakistan’s economy (output and price) in the long run? Explain your     answers using graphs. (2.5 Marks, Maximum 150 words)

Answer 1

a. Pakistan’s AD and AS will increase, as a result output will increase and price may either increase or decrease in the short run.

b. Pakistan’s economy will stop rising and pull back, so the output will decrease and price may either increase or decrease in the long run.