A negative supply shock in the short run causes
A)the aggregate supply curve to shift to the left.
B)the price level to fall.
C)unemployment to fall.
D)equilibrium real GDP to rise.

Question

Quizplus · Accepted Answer

A negative supply shock, such as an increase in the price of oil or a natural disaster disrupting production, will lead to a decrease in the supply of goods and services. This will cause the aggregate supply curve to shift to the left, indicating a decrease in the quantity of output. It is unlikely that the price level will fall since the decrease in supply will cause an increase in the price level. Unemployment is also unlikely to fall since the decrease in supply will lead to a decrease in employment opportunities. Equilibrium real GDP is not likely to rise since the decrease in supply will cause a decrease in the quantity of output.

A Negative Supply Shock in the Short Run Causes