An unfavourable 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

An unfavourable supply shock means that the cost of production increases, therefore, causing a decrease in short-run aggregate supply. This is because it becomes less profitable for firms to produce goods and services, leading to a decrease in output. The decrease in short-run aggregate supply can also lead to an increase in prices in the short run, causing inflation.

An Unfavourable Supply Shock Causes ________ to ________

An Unfavourable Supply Shock Causes to