The usual results of an adverse supply shock are
A) a rise in prices and a fall in output.
B) a fall in prices and a rise in output.
C) increased growth and lower inflation.
D) a rise in prices and a rise in output.

Question

Quizplus · Accepted Answer

An adverse supply shock is usually caused by factors such as natural disasters, war or political instability, and can lead to a decrease in the supply of goods and services. As a result, the economy faces a situation where demand exceeds supply, leading to an increase in prices known as inflation. At the same time, due to the limited supply of goods, the output of the economy falls. Therefore, option A is the best choice that describes the usual results of an adverse supply shock.

The Usual Results of an Adverse Supply Shock Are