Question

Next, when the firms recover from the flood and businesses can start to operate again, the short-run aggregate supply curve will:

Choose one: A. shift to the left to SRAS1. B. shift to the left to SRAS2. C. shift to the right to SRAS1. D. shift to the right to SRAS3.
After this last shift in the aggregate supply curve, the economy will be at
Choose one: A. Point A. B. Point B. C. Point C. D. Point D. E. Point E.
Finally, also suppose that people expect that there will be a huge rebuilding effort. Based on this expectation, the aggregate demand curve will
Choose one: A. shift to the left. B. shift to the right. C. remain unchanged.
Because of aggregate demand’s response to the expected rebuilding effort, the economy will be at
Choose one: A. Point A. B. Point B. C. Point C. D. Point D. E. Point E.

Answer 1

When firms recover from a flood, the short-run aggregate supply curve will shift to the right. The economy will be at Point B after this shift. Due to the expectation of a huge rebuilding effort, the aggregate demand curve will also shift to the right, placing the economy at Point E.

Step-by-step explanation:

When firms recover from a flood and businesses can start operating again, the short-run aggregate supply curve will shift to the right to SRAS1. This is because as businesses resume operations, they are able to produce more goods and services, increasing the aggregate supply.

The economy will be at Point B after this shift in the aggregate supply curve. Point B represents the new equilibrium where the aggregate demand and aggregate supply intersect.

Based on the expectation of a huge rebuilding effort, the aggregate demand curve will shift to the right. This is because the expected increase in spending on rebuilding will increase the demand for goods and services in the economy.

As a result of the aggregate demand's response to the expected rebuilding effort, the economy will be at Point E. Point E represents the new equilibrium with higher output and higher price levels.