A negative shock to the long-run aggregate supply curve will cause:

Question

Quizplus · Accepted Answer

A negative shock to the long-run aggregate supply curve will cause a decrease in potential output and an increase in the cost of production, leading to a decrease in real growth. However, due to the higher cost of production, firms will raise their prices, leading to an increase in the inflation rate. Therefore, real growth will fall and the inflation rate will rise.

A Negative Shock to the Long-Run Aggregate Supply Curve Will