Hurricane Katrina was a natural disaster that would have had an impact in the US economy. What effect would Hurricane Katrina have on aggregate demand or aggregate supply, other things being constant? What would be the resulting effect on the equilibrium price level be?
Effect of Katrina on Aggregate Demand and Aggregate Supply
The immediate effect was an increase in aggregate demand without a corresponding increase in aggregate supply. This is an ingredient for an economic disaster which went unrestrained and increased the price of goods and services.
Kasriel (2005) noted that moments after Katrina, the local economy's ability to produce goods and services was constrained. The following events happened:
1. The reason for this is that the nation's energy production has been reduced for some uncertain time and its water freight transportation has been disrupted.
2. A significant amount of crude oil, natural gas and gasoline production has been halted by the hurricane.
3. Katrina's disruptive effects indicate still further ...
The solution investigates the impact of Hurricane Katrina on aggregate demand, aggregate supply, and price.
It showed that the immediate effect was an increase in aggregate demand without a corresponding increase in aggregate supply.