Answer to Question #226366 in Macroeconomics for Sachitha

Question

How to shift aggregate demand and supply curve if srilanka farmers suffer a prolonged period of unfavorable weather conditions for agriculture

Answer 1

Unfavorable weather conditions are an unfavorable supply shock which will lead to a sudden decrease in the supply of agricultural products, this will cause a shift in the short-run aggregate supply curve (SRAS) to the left.

 This will result in higher prices of agricultural products hence a decrease in aggregate

demand for agricultural products.

 Consequently, there will be a decrease in the real Gross Domestic Product.

The likely effects of an unfavorable supply shock include Higher costs. Higher prices.