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llpeyeg.cngage.com/stalic/nb/ui/evo/indexhtmisnapshotld-8403268id-323571121&dep; MINDTAP Homework (Ch 33) Back to Assignmen Attempts Keep the Highest: 1.s/2 The foilowing graph shows the short run aggregate supply curve (AS), the aggregate demand carve (AD), and the long-rn apgregate supoly curve LRAS) for a hypothetical economy. 1ntially, the expected price level equal to the actual price level. and the economy is n longrun equlbnum at ts natual level of oukput, $120 bilion, Suppose a bout of severe weather drives producing goods and services in ths economy. ap agricultural coots, increases the costs of transporting goeds and services, and increases the costs of Use the graph help answer the questions about the short-run and will not be graded on any adjustments made to the graph. kng-un emects of the increase in production costs that Mow. (Note: You lint: For ??ploty, ignore any possble mpact of the severe weather on the natural level of output. OUTPUT tions of dolars

Explanation / Answer

The short-run economic outcome resulting from an increase in production cost is known as stagflation as price level rise and output fall simultaneously as aggregate supply shifts leftwards.

When government does nothing in response to the short-term fluctuation in the aggregate supply, then in the long run as initially expected price was equal to actual price hence price and output at equilibrium will be at $110 which is a lower equilibrium than initial point as when price of goods and services rise consumption demand would fall automatically and demand curve would also shift towards left hence price falls.

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