suppose the economy is initially in long-run equilibrium. then suppose there is a drought that destroys much of the wheat crop. if policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

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25-10-2022
Business

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suppose the economy is initially in long-run equilibrium. then suppose there is a drought that destroys much of the wheat crop. if policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?

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What things might limit the supply in this situation?

sapanpandit sapanpandit · Answer 1 · 2022-11-05T08:48:09-04:00

The aggregate demand and supply model predicts that both output and price will decrease in the short term.

A macroeconomic model called the AD-AS, or aggregate demand-aggregate supply model, uses the link between aggregate demand (AD) and aggregate supply to explain price level and production (AS).

The whole supply and quantity demanded in an economy at a specific point in time and a specific price threshold are known as aggregate supply and aggregate demand. The total quantity a country produces and sells is its gross domestic product (GDP), which is referred to as aggregate supply. The total sum expended on domestic products and services in an economy is known as aggregate demand.

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