How do adverse supply shocks affect economic performance?

Question

Quizplus · Accepted Answer

Adverse supply shocks cause a decrease in the supply of goods and services, which leads to increases in their prices. At the same time, a decrease in supply also makes it harder for businesses to produce as many goods and services, leading to a decrease in real output. As a result, option B, which states that adverse supply shocks increase prices and decrease real output, is the correct choice.

How Do Adverse Supply Shocks Affect Economic Performance