The short-run effects of a favorable supply shock will include
A) an increase in the general level of prices and a decrease in real output.
B) an increase in the general level of prices and an increase in real output.
C) a decrease in the general level of prices and a decrease in real output.
D) a decrease in the general level of prices and an increase in real output.

Question

Quizplus · Accepted Answer

A favorable supply shock will increase the aggregate supply, causing a decrease in the general level of prices and an increase in real output. This is because the economy can produce more goods and services at lower costs, resulting in an increase in real production and a decrease in the price level.

The Short-Run Effects of a Favorable Supply Shock Will Include