If the price level is increasing and output is falling,which of the following could be the reason?
A) A negative demand shock
B) A positive supply shock
C) A positive supply shock combined with a positive demand shock
D) A negative supply shock
E) A positive demand shock.

Question

Quizplus · Accepted Answer

A negative supply shock, such as a decrease in productivity or an increase in production costs, would lead to a higher price level and a decrease in output. A negative demand shock (A) or a positive demand shock (E) would not directly affect output. A positive supply shock (B) or combine positive demand and supply shocks (C) would lead to a decrease in the price level and an increase in output.

If the Price Level Is Increasing and Output Is Falling,which