Suppose that there is an adverse supply shock. Which of the following curves will shift left?
A)both the aggregate supply curve and the Phillips curve
B)only the aggregate supply curve
C)only the Phillips curve
D)neither the aggregate supply curve nor the Phillips curve

Question

Quizplus · Accepted Answer

An adverse supply shock causes a decrease in productivity and an increase in input costs, leading to a reduction in aggregate supply. Therefore, only the aggregate supply curve would shift left, while the Phillips curve would remain unchanged as it represents the relationship between inflation and unemployment.

Suppose That There Is an Adverse Supply Shock