A recessionary real shock is associated with an outward shift of the short-run Phillips curve and a leftward shift of the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

A recessionary real shock, which can be caused by factors such as a decrease in consumer confidence or a decrease in productivity, leads to a decrease in aggregate demand and a leftward shift in the short-run aggregate supply curve. This results in an increase in inflation and unemployment, causing an outward shift of the short-run Phillips curve. Therefore, the statement is true.

A Recessionary Real Shock Is Associated with an Outward Shift