1. What would happen to short- and long-run aggregate supply if unusually good weather let to bumper...

Question

1. What would happen to short- and long-run aggregate supply if unusually good weather let to bumper corps of most agricultural produce?
2. What would help wages from falling quickly in a recession?
3. What is a recessionary gap? Give Example.
4. Why could you say that supply-side economics is really more about after-tax wages and after-tax returns on investment than is about tax rates?

David · Accepted Answer

1) Suppose the weather suddenly changes and becomes favourable for the production of crops. This 
will increase the production of crops in the short run as a result the short run aggregate supply 
curve will shift to the right. As a result equilibrium output will increase in the short run and the 
equilibrium price will fall.  
But this change in weather is not permanent. The economy enjoyed this good weather only in the 
short run. In the long run the weather will change back to the normal one. As a result the short 
run supply curve will come back to its original position. So long run supply will not change. The 
long run supply curve will be vertical as usual and remain in its original position. 
This is shown in the following figure:
Initially, AS0 was the aggregate supply curve. With the improvement in weather, the As curve 
shifts to the right, from AS0 to AS1. As a result, price falls to P1 and output rises to Q1. But in the 
long run,

1. What would happen to short- and long-run aggregate supply if unusually good weather let to bumper corps of most agricultural produce? 2. What would help wages from falling quickly in a recession?...

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