So this question probably says something about myself or my friends, but the other day we were arguing over the effect of a Zombie Apocalypse on AS/AD.
We agreed that as humans are infected and become zombies SRAS will shift left as the labor force diminishes. Costs of production would also rise as transportation costs rise having to avoid areas of zombie infestation. You get the idea.
Since at this point there is no cure for the virus that is at the heart of any zombie outbreak these changes in supply are likely permanent, shifting LRAS left as well.
The real argument came with the debate over whether AD shifts left, right or is indeterminate. Some argued that as humans become zombies AD would obviously shift left since zombies don't demand anything. There would also likely be quite a dent in international trade resulting from quarantines to restrict the spread of the disease. Investment would likely fall as inventories drop with looting and the unstable business environment made planning future investments problematic.
On the other hand, government expenditures might rise sharply with additional defense expenditures, rescue operations and medical research and development. In addition, those of us left would certainly demand more weaponry, canned food, kerosene, etc. - survivalist type stuff. Given this, wouldn't AD shift to the right? Or would the resulting positive changes in aggregate demand simply cancel out the negative changes in AD resulting in no real change or AD is indeterminate?
I need your help. They some don't like my answer - that SRAS and LRAS shift left and AD is indeterminate. Does AD shift? Which way? If so which happens first, the shift in AD or SRAS?
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