Question:
Geologists Determined Crude oil
1)Suppose geologists have determined that crude oil will run out in the next ten years. How would such an increase in scarcity affect the prices of crude oil and how would firms be affected?
2)Using the AD-AS model, show how the effects in part (1) affects output and inflation in the short run and in the long run, assuming no policy response.
3) What happens if the government or the central bank responds to The effects in part (2)? Show using an AD-AS model.