The short-run economic outcome resulting from the increase in production costs is known as (Deflation, Monetary Neutrality, Spendflation, Stagflation)

Now suppose that the government immediately pursues anaccommodative policyby increasing government purchases in response to the short-run economic impact of the severe weather.

In the long run, when the government pursues accommodative policy, the output in the economy will be [$ ] billion and the price level will be [ ].

The following graph shows the short-an aggregate supply curve (AS), the aggregate demand curve (AD), and the longrun aggregate supply curve [LRAS} for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural level of output, $100 billion. 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 help you answer the questions about the short-run and tong-run effects of the increase in production costs that fettow. (Note: You wrl'u' not be graded on any adjustments made to the graph. } Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. 120 Leis D '115 AS AD 110 EI \"15 _, AS UJ 3:- 5130 -+ + E E 95 LRAS on D 35 BID SCI 35 on 95 'IIJO HE 110 115 123 OUTPUT {Bilinnsuldulars}