Such an exercise can be quite complicated, building in all sorts of lags and expectation effects; but the basic analytical model has been around for a long time, and the reasoning is familiar. With oil shocks, policymakers are confronted with a new dilemma.
Policy must then balance competing objectives in the presence of a shock that normally implies more inflation, more unemployment, or a combination thereof. In this environment, the choices become more difficult, and the public perceptions of how well stabilization policy is doing will inevitably decline. However, it is possible to distinguish between good and bad policy choices, even when no choice looks especially desirable.