A negative supply shock causes output to _____ and the price level to _____.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

A negative supply shock, such as an increase in the price of oil or a decrease in productivity, will cause a decrease in output (as firms become less able to produce goods and services) and an increase in the price level (due to the higher costs of production being passed on to consumers). Therefore, choice D is the correct answer.

A Negative Supply Shock Causes Output to _____ and the Price