A positive supply shock causes stagflation in the short run.

Name: A positive supply shock causes stagflation in the short run.
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Question

Quizplus · Accepted Answer

A positive supply shock increases the aggregate supply, leading to a decrease in prices and an increase in output in the short run. Stagflation is characterized by both inflation and unemployment, which cannot occur simultaneously with an increase in output. Therefore, a positive supply shock does not cause stagflation in the short run.

A Positive Supply Shock Causes Stagflation in the Short Run