Question: For each of the following events, with an AD and AS diagram, explain the short-run and long-run effects on output (or equilibrium GDP) and the price level. Assume that the economy is initially at full employment
a. Firms become very optimistic about future business conditions and invest heavily in new capital equipment.
b. A recession overseas causes foreigners to buy fewer. U.S. goods.
c. Since the OPEC recently decided to reduce oil supply, world oil prices have significantly risen.