A supply shock is a surprise occurrence that
A) shifts the long-run aggregate supply curve to the right.
B) either increases or decreases short-run aggregate supply and output.
C) temporarily increases aggregate demand.
D) temporarily reduces aggregate demand.

Question

Quizplus · Accepted Answer

A supply shock can either increase or decrease short-run aggregate supply and output, depending on the nature of the shock. For example, an increase in oil prices would decrease short-run aggregate supply and output, while a technological breakthrough could increase both. The long-run aggregate supply curve is not affected by temporary supply shocks. Temporary changes in aggregate demand are not an inherent part of a supply shock, so choices C and D are not correct.

A Supply Shock Is a Surprise Occurrence That