(Solved): The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve \( ...

The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve \( (A D) \), and the fong-run aggregate suppiy curve ? LRAS) for a bypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at ics. natural level of output; \( \$ 110 \) bililion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services in this economy. Use the graph to hiep you answer the questions about the short-rin and long-run effects of the increase in production costs that follow. (Note: You Will not be graded on any ocfustments made to the graph.) Hint: For simplicity, ignore any possibie impact of the severe weather on the natural level of output. The stoot-run econainie qutcome retsuiting from the increace in prosuction costs u) knawn ail The short-ruf econamic oitcoeter retulting from the increase in production costs is known as Now suppose that the government immediately pursies in accommodative policy by incre hases in response to the thort-run economic impacc of the stivere weather. In the toeig run. when the goyemment. puryats accummodative poticy, the output in the ecph lion and the peice level widbe The-shartirun nconoenic eutcome resulting from the increase in ncoduction costs fe known as Now subptise that the qovernmens immediately puewues an accominidative pollicy by increasing oovemment purchates in response ta the ahart-rut econocticimpact of the severe weather. In the loeg run, when the gavemment pursues accomimbdative poticy, the output in the economy wili be bilion and the price level thi be