Which of the following is true for an economy that has experienced a temporary supply shock?
A) The supply shock is likely to have shifted the short-run aggregate supply curve to the right.
B) There is likely to be a fall in inﬂationary expectations in the economy.
C) Short-run macroeconomic equilibrium will consist of lower GDP and higher inﬂation.
D) The central bank is likely to reduce interest rates to bring the inﬂation rate down.

Question

Quizplus · Accepted Answer

A temporary supply shock typically results in a leftward shift of the short-run aggregate supply curve, leading to higher prices (inflation) and lower output (GDP), which is described by option C.

Which of the Following Is True for an Economy That