Starting from the long-run equilibrium at point A,an adverse price shock that shifts up the SRAS curve to SRAS' will move the short run equilibrium to point B,resulting in ___________ output and a ___________ price level.This amounts to ___________.

Question

Quizplus · Accepted Answer

An adverse price shock shifts the SRAS curve upward, which leads to a higher price level and lower output in the short run. This is known as stagflation. The long-run equilibrium output level remains the same, but the price level is permanently higher due to the adverse shock. Thus, choice B is the best answer. Choices A, C, D, and E are incorrect because they imply either deflation, permanently higher inflation, or no change in output, which do not accurately describe the impact of an adverse price shock on the economy.

Starting from the Long-Run Equilibrium at Point A,an Adverse Price