What will an adverse supply shock cause output and prices to do?
A) It will cause output and prices to rise.
B) It will cause output and prices to fall.
C) It will cause output to rise and prices to fall.
D) It will cause output to fall and prices to rise.

Question

Quizplus · Accepted Answer

An adverse supply shock is a sudden decrease in the availability of a key input, resulting in a decrease in output and an increase in the price level. This means that output will fall (as there are fewer inputs) while prices will rise (as producers will have to charge more to maintain their profits).

What Will an Adverse Supply Shock Cause Output and Prices