The 1974-1975 recession clearly illustrates how a supply shock affect the economy, Following the Arab-Israeli War of 1973, the Organization of Petroleum Exporting Countries (OPEC) took action that increased the price of a barrel of oil from less that $3 to more than $10. Use the information and the statistics in the following table to draw a dynamic aggregate demand and aggregate graph showing supply macroeconomic equilibrium for 1974 and 1975. Assume that aggregate demand curve did not shift between 1974 and 1975. Provide a brief explanation of your graph. Actual Real GDP Potential GDP Price Level 1974 $5.39 trillion $5.42 trillion 28.7
1975 $5.38 trillion $5.61 trillion 31.4