After a temporary adverse supply shock hits the economy,general equilibrium is restored by

Question

Quizplus · Accepted Answer

A temporary adverse supply shock would lead to higher prices and interest rates, which in turn would decrease the demand for money. This is represented by a shift up and to the left of the LM curve in the IS-LM model, as it reflects higher interest rates for any given level of income, adjusting the economy back to a new equilibrium.

After a Temporary Adverse Supply Shock Hits the Economy,general Equilibrium