Which of the following would NOT be associated with a favourable supply shock?
A)The short-run Phillips curve shifts left.
B)Unemployment falls.
C)The price level rises.
D)Output rises.

Question

Quizplus · Accepted Answer

A favourable supply shock would increase the aggregate supply, leading to lower unemployment and higher output. This would shift the short-run Phillips curve left, indicating a lower trade-off between inflation and unemployment. However, the price level would not rise with a favourable supply shock because the increase in supply would lead to lower prices or at least less of a price increase than would otherwise have occurred. Therefore, choice C is not associated with a favourable supply shock.

Which of the Following Would NOT Be Associated with a Favourable