Beginning from an equilibrium in an AD-Solow growth curve model, a negative supply shock will cause

Name: Beginning from an equilibrium in an AD-Solow growth curve model, a negative supply shock will cause
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Question

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A negative supply shock leads to a decrease in the aggregate supply, shifting the AD curve leftward. This leads to a decrease in real output (decreasing growth) and an increase in price levels (inflation). Therefore, the correct choice is D, where real growth decreases and inflation increases.

Beginning from an Equilibrium in an AD-Solow Growth Curve Model