Friday, December 18, 2009

Illusrate using ad as curves how high oil prices and olw interest rates cn lead to inflation?

WHAT?Illusrate using ad as curves how high oil prices and olw interest rates cn lead to inflation?
Aggregate Supply (AS): high oil price will reduce aggregate supply (AS curve shift to the left) as increase in production costs by firms, which in turn will force producers to raise their prices





Aggregate demand (AD): low interest rates in the economy will attract more borrowers as borrowing cost is lower, and therefore borrowers will spend more on investment n cosumption, which in turn increase aggregate demand (AD curve shift to the right); the increase in AD will cause prices to riseIllusrate using ad as curves how high oil prices and olw interest rates cn lead to inflation?
lets not and say we did.

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