If there is a favourable 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

A favourable supply shock will increase the economy's potential output, leading to a rightward shift in the aggregate supply curve. This will result in lower prices and higher output levels in the short run, causing the short-run Phillips curve to shift left. Therefore, the correct choice is C, as it reflects the shifts in both curves.

If There Is a Favourable Supply Shock, Which of the Following