An adverse supply shock would cause
A)a movement up the short-run Phillips curve.
B)a movement down the short-run Phillips curve.
C)the short-run Phillips curve to shift upward and to the right.
D)the short-run Phillips curve to shift downward and to the left.

Question

Quizplus · Accepted Answer

An adverse supply shock such as an increase in oil prices or a natural disaster that disrupts production will lead to a decrease in the aggregate supply. This will cause the short-run Phillips curve to shift upward and to the right, indicating a higher level of inflation for any given level of unemployment. Consequently, the economy will experience both higher inflation and higher unemployment in the short run.

An Adverse Supply Shock Would Cause