In the short run,a negative supply shock
A) causes firms' unit costs to decrease
B) shifts the AS curve to the right
C) causes output to decrease and the price level to increase
D) shifts the AD curve to the left
E) causes both output and the price level to decrease

Question

Quizplus · Accepted Answer

A negative supply shock reduces the level of aggregate supply, causing the AS curve to shift to the left. This results in a decrease in output and an increase in the price level. Therefore, option C is the correct choice.  Option A is incorrect, as a negative supply shock causes firms' unit costs to increase, not decrease. Option B is incorrect, as a negative supply shock shifts the AS curve to the left, not to the right. Option D is incorrect, as a negative supply shock affects aggregate supply, not aggregate demand. Option E is incorrect, as a negative supply shock causes output to decrease and prices to increase.

In the Short Run,a Negative Supply Shock