Starting from a long-run equilibrium,an upward inflation shock results in a short-run equilibrium with ________ inflation and ________ output.
A) higher;higher
B) higher;lower
C) higher;potential
D) lower;lower
E) lower;higher

Question

Quizplus · Accepted Answer

An upward inflation shock will initially increase prices, reducing the purchasing power of consumers and leading to a decrease in real output. Therefore, the short-run equilibrium will have higher inflation and lower output. Choice B is the only option that reflects this outcome.

Starting from a Long-Run Equilibrium,an Upward Inflation Shock Results in a Short-Run