A temporary adverse supply shock, such as a drought _____
A) permanently shifts both the short-run and the long-run aggregate supply curves to the right.
B) temporarily shifts both the short-run and the long-run aggregate supply curves to the right.
C) permanently shifts both the short-run and the long-run aggregate supply curves to the left.
D) temporarily shifts both the short-run and the long-run aggregate supply curves to the left.
E) has no effect on either the long-run or the short-run aggregate supply curves.

Question

Quizplus · Accepted Answer

A temporary adverse supply shock, such as a drought, will reduce the availability of inputs, causing an increase in costs and decrease in production in the short-run. As a result, both the short-run and the long-run aggregate supply curves will shift to the left temporarily. However, in the long-run firms can adjust their production processes and the economy can adjust to the shock, causing the long-run aggregate supply curve to shift back to its original position. Therefore, the effect on the long-run aggregate supply curve is temporary.

A Temporary Adverse Supply Shock, Such as a Drought _____