A positive real shock to the economy will result in an increase in the growth rate of output and a decrease in the rate of inflation.

Question

Quizplus · Accepted Answer

A positive real shock, such as an increase in productivity or a reduction in input costs, will increase the potential output of the economy, leading to an increase in the growth rate of output. At the same time, the increased production and supply will help to suppress inflationary pressures as there will be more goods and services available in the market at lower costs. This is known as a positive supply shock and it can result in a combination of higher output and lower inflation in an economy.

A Positive Real Shock to the Economy Will Result in an Increase