If a natural disaster causes a negative long-run supply shock to the economy, the new equilibrium will occur at a _______ price level and _______ level of output once the economy adjusts.
A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower

Question

Quizplus · Accepted Answer

A negative long-run supply shock reduces the productive capacity of the economy, leading to higher prices due to scarcity of goods and services and a lower level of output as the economy cannot produce as much as before.

If a Natural Disaster Causes a Negative Long-Run Supply Shock