If the economy experiences a(n)________,inflation will rise and real GDP will fall.

Question

Quizplus · Accepted Answer

A negative supply shock, such as an increase in the price of oil or a natural disaster disrupting production, causes a decrease in the availability or cost of inputs for businesses. This, in turn, leads to a decrease in short-run aggregate supply, causing prices to rise (inflation) and real GDP to fall. Both choices B and C suggest an increase in aggregate supply, which would have the opposite effect on both inflation and real GDP. Choice D would only lead to a decrease in real GDP but not necessarily an increase in inflation.

If the Economy Experiences A(n)________,inflation Will Rise and Real GDP