A positive supply shock causes ________ to ________.
A)aggregate demand;increase
B)aggregate demand;decrease
C)short-run aggregate supply;decrease
D)short-run aggregate supply;increase

Question

Quizplus · Accepted Answer

A positive supply shock increases the production capacity of an economy, leading to an increase in the short-run aggregate supply (SRAS) curve. Hence, the correct option is D, i.e., a positive supply shock causes short-run aggregate supply to increase. Conversely, a negative supply shock reduces the production capacity of an economy, leading to a decrease in the SRAS curve. The aggregate demand (AD) curve, on the other hand, is primarily influenced by factors such as changes in consumer spending, investment, government spending, and net export. Hence, a positive supply shock does not affect the aggregate demand curve, as evident from the incorrect options A and B.

A Positive Supply Shock Causes ________ to ________

A Positive Supply Shock Causes to