The "indirect effect" of an adverse supply shock in the SP/LP model is
A)a rightward shift of LP.
B)a leftward shift of LP.
C)an upward shift of SP.
D)a downward shift of SP.

Question

Quizplus · Accepted Answer

An adverse supply shock in the SP/LP (Short-Run Phillips Curve/Long-Run Phillips Curve) model typically leads to an upward shift of the SP curve, reflecting higher inflation at every level of unemployment due to the increased costs of production.

The "Indirect Effect" of an Adverse Supply Shock in the SP/LP