Given the aggregate demand curve,a beneficial supply shock will:
A)increase potential output and the price level.
B)decrease potential output and the price level.
C)increase potential output and decrease the price level.
D)decrease potential output and increase the price level.
E)cause no change in potential output or the price level.

Question

Quizplus · Accepted Answer

A beneficial supply shock shifts the aggregate supply curve to the right, leading to an increase in potential output and a decrease in the price level. This is shown in the intersection of the AD and AS curve, where the increase in potential output corresponds with a decrease in the price level. Therefore, option C is the correct answer.

Given the Aggregate Demand Curve,a Beneficial Supply Shock Will