Question
The following figure depicts the aggregate demand (AD), the short-run aggregate supply(SRAS), and the long-run aggregate supply (LRAS) curvesfor Sri Lanka. The economy is initially
The following figure depicts the aggregate demand (AD), the short-run aggregate supply(SRAS), and the long-run aggregate supply (LRAS) curvesfor Sri Lanka. The economy is initially at long-run equilibrium, at point A. Because of a prolonged civil war, Sri Lanka experienced many of the adverse effects of a war, including the destruction of many valuable resources across the country. For example, the country experienced a significant reduction in the arable land available in the north and northeastern parts of the country. This reduction in arable land,and, therefore, agriculture output, is reflected in a shift in the SRAS curve to the left,depicted below in the movement of the economy from point A to point B. In the figure below, shift the appropriate curve to depict how the economy reacts in the long run, when all prices are flexible.
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