Suppose that severe floods destroyed farms, homes, and businesses in the Midwest. Use the aggregate demand/aggregate supply model, to explain the changes you would expect to take place and the effects you would expect these floods to have on both output and prices. (Include both short-run and long-run effects.)

The destruction of output and the temporary business stoppage would reduce short-run aggregate supply, causing an increase in prices and a reduction in output. In the long run, however, the crops will be regrown and businesses will open, causing short-run aggregate supply to shift back to its original level. In the long run, output and prices will be unaffected.