Econ question for practice?
Suppose that a particularly harsh hurricane season reduces oil-refining capacity and shuts down plants, factories, and office buildings in the Gulf Coast region. How would this effect the aggregate demand and short run aggregate supply of an economy? How about in terms of unemployment and inflation?
THANKS!
Tagged with: aggregate demand • aggregate supply • economy • factories • gulf coast region • hurricane season • inflation • office buildings • oil refining • plants • unemployment
Filed under: Hurricane Questions
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Since the hurricane has disrupted the supply of oil, the aggregate supply (AS) will decrease. The AD will remain relatively unchanged from this event.
Price of oil will increase, causing inflation since almost everything needs oil. For those working in the refinery, they will lose their jobs because the infrastructure is destroyed. However, even with an increase in oil prices, they will still have their jobs because the oil has inelastic demand, consumers are able to absorb the increase in wage if they demanded.
When oil prices increase, some people will go unemployed because firms will cut down cost of production by retrenching workers.