Assignment:
Respond to the following:
In 1973, there was an oil supply shock created by OPEC (the Organization of the Petroleum Exporting Countries). Your textbook describes the supply shock as a source of the recession which lasted from 1973-1975 because it shifted the US aggregate supply (AS) curve inward to the left, relative to aggregate demand (AD).
1. Now that oil prices are dropping, use aggregate demand (AD) and aggregate supply (AS) to explain why this is good for consumers.
2. What impact does declining oil prices have on inflation?
3. Is there a downside to low oil prices? Who are the winners and losers in the economy?