In the short-run,a supply shock will lead to
A)movement of prices and output in the same direction.
B)movement of prices and output in opposite directions.
C)a sustained inflation.
D)a movement in prices,but not output.

Question

Quizplus · Accepted Answer

In the short-run, a supply shock can cause a temporary decrease or increase in the availability of inputs, leading to a decrease or increase in output. However, it will also cause a movement in prices in the opposite direction to output. For example, a negative supply shock could cause a decrease in the supply of a key input, leading to a decrease in output and an increase in prices. Similarly, a positive supply shock could cause an increase in the supply of a key input, leading to an increase in output and a decrease in prices. Therefore, the correct choice is B, movement of prices and output in opposite directions.

In the Short-Run,a Supply Shock Will Lead to