Final answer:
An increase in the price of oil could create an inflationary gap, potentially raising unemployment over time. Expansionary fiscal policy, such as lower taxes or increased government spending, could be used to stimulate the economy and return it to full employment, shown by a rightward shift in aggregate demand on a graph.
Step-by-step explanation:
When the price of oil increases in the US economy that is operating at full employment, it potentially creates an inflationary gap due to higher production costs leading to overall increases in prices. The unemployment rate may initially remain low as the economy is at full employment, but over time, it could increase if higher costs lead to reduced consumption and production.
To counteract the effects and return the US to full employment, the government could implement an expansionary fiscal policy including lowering taxes or increasing government spending. This policy is designed to stimulate economic activity and reduce unemployment by increasing aggregate demand. On a graph of the economy, this would be represented by a rightward shift of the aggregate demand curve back towards the full employment level of output.