In the short-run,the impact of an adverse supply shock is to
A)reduce real GDP and leave the inflation rate unchanged if the growth of nominal GDP remains the same.
B)reduce real GDP and leave the inflation rate unchanged if the growth of nominal GDP is reduced enough.
C)maintain the same level of real GDP and reduce the inflation rate if the growth of nominal GDP is increase enough.
D)All of the above

Question

Quizplus · Accepted Answer

An adverse supply shock causes a decrease in aggregate supply, leading to higher prices and reduced output. If the growth of nominal GDP remains the same, the inflation rate will increase and real GDP will decrease. Only if the growth of nominal GDP is reduced enough can the inflation rate remain unchanged while real GDP decreases. Thus, only option B accurately describes the short-run impact of an adverse supply shock.

In the Short-Run,the Impact of an Adverse Supply Shock Is