If the economy experiences a(n)________, inflation will rise and real GDP will fall.

Question

Quizplus · Accepted Answer

A negative supply shock is a sudden decrease in the supply of goods and services, which leads to an increase in prices and a decrease in real GDP. This is because the cost of production increases, causing firms to reduce output, and consumers to reduce spending due to higher prices. Inflation increases because producers pass on the higher costs to consumers, and real GDP decreases due to the decrease in production.

If the Economy Experiences A(n)________, Inflation Will Rise and Real