Which of the following would cause the price level to fall and output to rise in the short run?
A)an increase in the money supply
B)a decrease in the money supply
C)an adverse supply shock
D)a favorable supply shock

Question

Quizplus · Accepted Answer

A favorable supply shock would cause an increase in aggregate supply, resulting in a decrease in the price level and an increase in output in the short run. An increase in the money supply (choice A) would cause an increase in aggregate demand, which could lead to an increase in both the price level and output in the short run. A decrease in the money supply (choice B) would have the opposite effect, lowering output and potentially causing a decrease in the price level as well. An adverse supply shock (choice C) would cause a decrease in aggregate supply, leading to an increase in the price level and a decrease in output in the short run.

Which of the Following Would Cause the Price Level to Fall