Suppose the Midwest experiences a major drought, decreasing yields of corn, a major input in gasoline, and an influx of processed foods. How would this be represented in the AD/AS model?
A) The long-run aggregate supply curve would shift to the left.
B) The long-run aggregate supply curve would shift to the right.
C) The short-run aggregate supply curve would shift to the left.
D) The short-run aggregate supply curve would shift to the right.

Question

Quizplus · Accepted Answer

A drought in the Midwest would decrease the supply of corn, which is a major input in gasoline and processed foods. This would increase the cost of production for these goods and cause a decrease in short-run aggregate supply, shifting the SRAS curve to the left. In the long run, producers may be able to adjust their production methods or find alternative inputs, but in the short run, the decrease in supply will result in higher prices and lower output. Therefore, the correct answer is C, the short-run aggregate supply curve would shift to the left.

Suppose the Midwest Experiences a Major Drought, Decreasing Yields of Corn