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Graphically analyse the effect of a sudden change in the international price of oil for Canadian economy noting that in case
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When price of oil increases, the aggregate expenditure AE decreases when price level increase. This shifts the AE curve from AE(P1) TO AE(P2). The net exports will fall due to increase in oil price which is an export for canada. This shifts the AD curve from AD1 to AD2 to the left. Also because the oil is a major input the AS curve shifts up from AS1 to AS 2. This results in reduced output for Canada from Y1 to Y2.

THE AE(Pi) - AER) AS2 ASI - ADI AD 72 L YI

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