Answer:
The short-run economic outcome resulting from the increase in production costs is known as - Stagflation
Stagflation is a situation in which there is high inflation and high unemployment. In Stagflation, aggregate demand is constricted due to the high costs of goods and services because of an increase in firms' production costs.
Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the severe weather. In the long run, when the government pursues accommodative policy, the output in the economy will be $ billion and the price level will be .
If the government pursues an accommodative policy, also known as an expansionary policy, both the output of the economy and the price level will increase in comparison to the previous numbers.
However, hopefully the level of output will increase proportionally more than the price level, because otherwise, the economic growth will be accompanied by high inflation, leading to an overheated and dysfunctional economy.
