According to aggregate demand and supply analysis,the negative supply shocks of 1973-1975 and 1978-1980 had the effect of
A)increasing aggregate output,lowering unemployment,and raising the price level.
B)decreasing aggregate output,raising unemployment,and raising the price level.
C)increasing aggregate output,raising unemployment,and raising the price level.
D)decreasing aggregate output,raising unemployment,and lowering the price level.

Question

Quizplus · Accepted Answer

Negative supply shocks decrease aggregate supply, which leads to a decrease in output and an increase in prices. The decrease in output leads to an increase in unemployment, which is consistent with option B. Option A is incorrect because an increase in supply should lead to a decrease in prices, not an increase. Option C is incorrect because although the negative supply shock may increase output initially, in the long run it will decrease output due to the higher prices. Option D is incorrect because a decrease in output should lead to an increase in prices, not a decrease.

According to Aggregate Demand and Supply Analysis,the Negative Supply Shocks