A temporary adverse supply shock directly causes
A)a shift down and to the left of the IS curve.
B)a shift to the left of the FE line.
C)a shift down and to the right of the LM curve.
D)a shift up and to the right of the IS curve.

Question

Quizplus · Accepted Answer

A temporary adverse supply shock causes a decrease in supply, which leads to higher prices and lower output. This results in a leftward shift of the FE line in the short run. The IS curve and LM curve are not directly affected by the supply shock, but may shift due to changes in interest rates or output levels caused by the initial shock.

A Temporary Adverse Supply Shock Directly Causes