Unit 2: Introduction to Macroeconomics

Lesson 12b: The AD/AS Model - AS and Equilibrium in the Macro-Economy
(UE, IN, and EG)

Something Interesting - Why are we studying this?

 

Low oil prices boost economic growth:

"Sinking prices have implications for economies across the globe. Important oil exporters, such as the OPEC countries, bear the brunt of negative impacts, while oil importers benefit. Overall economic activity in the U.S. will benefit, although lower oil prices will depress activity in many producing states, such as Texas and North Dakota..... Depending on which economic model is used, a 50 percent oil price decline yields a 0.3 to 1 percent increase in U.S. GDP. The traditional rule of thumb has been that a sustained 50 percent lower crude oil price raises the growth rate by about 1 percentage point. However, since the U.S. produces more oil and uses it more efficiently nowadays, the traditional rule of thumb should probably be halved—the reduction should boost U.S. growth 0.5 percentage point for a year or so."

From: Dallas Fed Vol. 10 No. 3, April 2015, "Economic Letter - Plunging Oil Prices: A Boost for the U.S. Economy, a Jolt for Texas" by Anthony Murphy, Michael Plante and Mine Yücel

https://www.dallasfed.org/assets/documents/research/eclett/2015/el1503.pdf

After this lesson you should be able to use an AS/AD graph to illustrate the effects of low oil prices on the US economy and use the graph to explan what should happen to UE, IN, and EG.

 

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Lesson 12b