Graphically an increase in the short-run aggregate supply line represents a(n)________, and a shift leftward of the long-run aggregate supply line represents a(n)________.
A)adverse inflation shock; shock to potential output
B)favorable inflation shock; shock to potential output
C)shock to potential output; adverse inflation shock
D)shock to potential output; favorable inflation shock

Question

Quizplus · Accepted Answer

An increase or shift upward of in the short-run aggregate supply represents an adverse inflation shock; where as a decline in potential output is modeled as a leftward shift of the LRAS.

Graphically an Increase in the Short-Run Aggregate Supply Line Represents