A supply shock is an event that directly alters firms' costs and prices, shifting the economy's aggregate supply and thus the Phillips curve.

Question

Quizplus · Accepted Answer

A supply shock can result in changes in the cost of production and the availability of inputs, which can affect firms' output and pricing decisions. As a result, the aggregate supply curve may shift, leading to changes in the Phillips curve and the tradeoff between inflation and unemployment.

A Supply Shock Is an Event That Directly Alters Firms