A major adverse aggregate supply shock:
A)automatically shifts the aggregate demand curve rightward.
B)causes the Phillips Curve to shift outward.
C)can be caused by rising productivity.
D)can be caused by falling wages.

Question

Quizplus · Accepted Answer

A major adverse aggregate supply shock causes the Phillips Curve to shift outward, as it leads to a decrease in output and an increase in prices. This means that there is a higher rate of inflation and higher unemployment, which results in a shift of the Phillips Curve to the right. A major adverse aggregate supply shock is not automatically caused by rising productivity, and cannot be caused by falling wages as this would actually increase aggregate supply.

A Major Adverse Aggregate Supply Shock