Question $2$: AD$-$AS

Consider the model of Aggregate Demand $($AD$)$ as well as the long$-$run Aggregate Supply curve $($LRAS$)$ and a short$-$run Aggregate Supply curve $($SRAS$)$

a$)$ An earthquake hit Jamaica and destroyed its major factories; illustrate the effect of this negative supply shock on the economy in the short run and the long run. Please explain the process from the short run to the long run.

$(8$ marks$)$

b$)$ To minimize the effects of the shock, assume that instead of allowing the market to adjust on its own over the long run, the government decides to use monetary policy as a stabilization tool. Use a carefully labeled diaghm to illustrate the effect incorporating the government's policy decision to accommodate the shock from part $($a$)$

$(8$ marks$)$

c$)$ Is it better if the government intervenes in the market to accommodate such shocks or is it better to allow the market to adjust on its own?

$(4$ marks$)$ Show all workings and graphs