A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.
A) demand; aggregate demand; right
B) supply; aggregate demand; left
C) supply; short-run aggregate supply; left
D) demand; long-run aggregate supply; left

Question

Quizplus · Accepted Answer

A natural disaster that destroys part of a country's infrastructure is a supply shock, specifically a negative supply shock, that reduces the productive capacity of the economy in the short run. This shift in supply would shift the short-run aggregate supply curve to the left. This causes an increase in the price level and a decrease in real GDP in the short run.

A Natural Disaster That Destroys Part of a Country's Infrastructure