If a positive permanent supply shock were to occur,the resulting equilibrium would be:
A)a higher level of output and prices.
B)a lower level of output and prices.
C)a higher level of output at lower prices.
D)a lower level of output at higher prices.

Question

Quizplus · Accepted Answer

A positive permanent supply shock would increase the level of output by shifting the aggregate supply curve to the right. This would lead to lower prices as firms increase their production at a lower cost, but the level of output would be higher. Therefore, the equilibrium would be at a higher level of output with lower prices, making option C the correct answer.

If a Positive Permanent Supply Shock Were to Occur,the Resulting