What impact does good supply shock have on the price level and real output?
A)The price level increases and real output increases.
B)The price level decreases and real output decreases.
C)The price level decreases and real output increases.
D)The price level increases and real output decreases.

Question

Quizplus · Accepted Answer

A good supply shock is characterized by an increase in the economy's aggregate supply due to a positive shock to productivity or availability of factors of production. As a result, the cost of production decreases, leading to lower prices. With the lower cost of production, firms are able to produce more at a lower cost, leading to an increase in real output. Therefore, the correct answer is C, where the price level decreases, and real output increases.

What Impact Does Good Supply Shock Have on the Price