Which of the following is the most likely medium-run outcome of an adverse supply shock?
A)an increase in consumer prices and a higher level of real GDP
B)a decrease in real GDP
C)an increase in real wage rates
D)an increase in frictional unemployment
E)an increase in nominal GDP with real GDP remaining the same

Question

Quizplus · Accepted Answer

An adverse supply shock is a sudden decrease in the availability or increase in the cost of the inputs needed to produce goods and services. This will lead to an increase in production costs and a decrease in aggregate supply, resulting in a decrease in real GDP.

Which of the Following Is the Most Likely Medium-Run Outcome