How will an adverse supply shock shift the short-run aggregate-supply curve, and what will be the effect on prices?
A) It will shift the short-run aggregate-supply curve right, making prices rise.
B) It will shift the short-run aggregate-supply curve left, making prices rise.
C) It will shift the short-run aggregate-supply curve right, making prices fall.
D) It will shift the short-run aggregate-supply curve left, making prices fall.

Question

Quizplus · Accepted Answer

An adverse supply shock, such as a sudden increase in oil prices, typically reduces the quantity of goods and services that businesses can produce at any given price level, shifting the short-run aggregate-supply curve to the left. This decrease in supply, with demand remaining constant, leads to higher prices.

How Will an Adverse Supply Shock Shift the Short-Run Aggregate-Supply