If there is an adverse supply shock, which of the following will most likely happen?
A)The aggregate supply curve and the short-run Phillips curve will both shift right.
B)The aggregate supply curve and the short-run Phillips curve will both shift left.
C)The aggregate supply curve will shift right, and the short-run Phillips curve will shift left.
D)The aggregate supply curve will shift left, and the short-run Phillips curve will shift right.

Question

Quizplus · Accepted Answer

An adverse supply shock means there is a decrease in the availability or increase in the cost of production inputs, such as oil or labor. This results in a leftward shift of the aggregate supply curve, as firms have higher costs and are willing to supply less at any given price level. As a result, the short-run Phillips curve will also shift left, as inflation increases and unemployment rises in the short run.

If There Is an Adverse Supply Shock, Which of the Following