Suppose that the economy experiences a series of adverse aggregate supply shocks, and the central bank does not change its interest rate setting to accommodate them. The result will be:

Question

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Adverse aggregate supply shocks typically lead to higher production costs and lower output, which can increase unemployment as businesses cut back on production and potentially lay off workers. Without an accommodating monetary policy response (such as lowering interest rates to stimulate demand), the economy may struggle to counteract the negative effects of the supply shocks, leading to increased unemployment.

Suppose That the Economy Experiences a Series of Adverse Aggregate