A recessionary real shock will:
A)shift the aggregate demand curve to the left and reduce real GDP.
B)shift the aggregate demand curve to the right and increase real GDP.
C)shift the aggregate supply curve to the left and increase real GDP.
D)shift the aggregate supply curve to the left and reduce real GDP.
E)shift the aggregate supply curve to the right and increase real GDP.

Question

Quizplus · Accepted Answer

A recessionary real shock, such as a decrease in productivity or increase in production costs, will shift the aggregate supply curve to the left, reducing the amount of goods and services firms are willing and able to produce at any given price level. This will lead to a decrease in real GDP as well as potentially higher prices (i.e. inflation). Therefore, the correct answer is D) shift the aggregate supply curve to the left and reduce real GDP.

A Recessionary Real Shock Will