What does the aggregate supply and aggregate demand model predict about the combined impact of these shocks?
You’ve considered two different economic shocks resulting from Katrina:
1) An aggregate supply shock: Katrina increased energy prices and temporarily reduced U.S. productive capacity.
2) An aggregate demand shock: Government responded to the hurricane with massive expenditures on aid and rebuilding.
What does the aggregate supply and aggregate demand model predict about the combined impact of these shocks on the U.S. economy?
A. Real GDP will definitely fall, but the price level will definitely rise.
B. Real GDP may rise or fall, but the price level will definitely fall.
C. Real GDP may rise or fall, but the price level will definitely rise.
D. Real GDP will definitely rise, but the price level may rise or fall.
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C. Real GDP may rise or fall, but the price level will definitely rise
prices will rise a the price of all commodities is directly more or less increase with energy price.
If d spending on infrastructure is more than reduce productivity real GDP will rise and vice versa.