In 2005 hurricane Katrina devastated large portions of the G

In 2005 hurricane Katrina devastated large portions of the Gulf Coast economy. Many refineries went offline disrupting oil refining and distribution. What do you think was a likely result? A. the restricted supply constituted a cost push shock that would have shifted the long run AS curve to the right B. the restricted supply constituted a cost push shock that would have shifted the short run AS curve to the left C. the restricted supply constituted a cost push shock that would have meant an upward movement along the Phillips curve D. all of the above E. none of the above

Solution

B. the restricted supply constituted a cost push shock that would have shifted the short run AS curve to the left.

The cost push shocks results from the hurricane Katrina will increase the prices due to the rise in the cost of wages and raw materials. So the aggregate supply will decrease due to the higher production cost, the decline in the production is a leftward shift in the aggregate supply curve.