Draw the graph · Macro · Aggregate demand and aggregate supply
An earthquake destroys factories
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Aggregate demand stays put. Short-run aggregate supply shifts left. Long-run aggregate supply shifts left.
Factories and ports are capital, one of the economy's resources. Losing them lowers the economy's capacity to produce, so LRAS shifts left. Firms can also produce less today at any price level, so SRAS shifts left. AD is unchanged.
Real GDP falls and the price level rises, with potential output lower.
Common mistake. Students often shift only SRAS. A lost capital stock that takes years to rebuild is a change in potential output, so LRAS moves too.
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Lesson: Aggregate Supply