Which of the following would cause the price level to rise and output to fall in the short run?
A)an increase in the money supply
B)a decrease in the money supply
C)an adverse supply shock
D)a favourable supply shock

Question

Quizplus · Accepted Answer

An adverse supply shock would cause a decrease in aggregate supply, leading to a rise in the price level and a decrease in output in the short run. Option A would cause an increase in aggregate demand, leading to an increase in both the price level and output. Option B would cause a decrease in aggregate demand, leading to a decrease in both the price level and output. Option D would cause an increase in aggregate supply, leading to a decrease in the price level and an increase in output in the short run.

Which of the Following Would Cause the Price Level to Rise