An unfavorable supply shock
A)shifts aggregate demand to the right.
B) shifts aggregate supply to the right.
C) shifts aggregate demand to the left.
D) shifts aggregate supply to the left.
E) has no effect on either aggregate supply or aggregate demand, only on the quantities supplied and demanded.

Question

Quizplus · Accepted Answer

An unfavorable supply shock results in a decrease in the supply of goods and services, leading to a leftward shift of the aggregate supply curve. This means that at any given price level, firms are willing to supply less output, causing a decrease in the equilibrium level of real GDP and an increase in the price level. As a result, there is no change in aggregate demand, and the supply shock only affects the quantities supplied and demanded.

An Unfavorable Supply Shock