Problem: Suppose the recent volcanic events in Iceland, which disrupted European air travel significantly, represented just the beginning. In other words, suppose that experts predict a world-wide series of huge eruptions from active volcanoes. The Yellowstone caldera is anticipated to be the largest--the caldera is roughly 30 miles by 40 miles.
Use the AD/AS model to describe what will happen in the short run and long run to the world real GDP and the price level. Moreover, describe what policymakers could do after this has happened.