Adverse aggregate supply shocks would result in:
A) A lower rate of inflation and a higher rate of unemployment
B) A higher rate of inflation and a lower rate of unemployment
C) A lower rate of inflation and a lower rate of unemployment
D) A higher rate of inflation and a higher rate of unemployment

Question

Quizplus · Accepted Answer

Adverse aggregate supply shocks, such as an increase in oil prices, result in higher production costs for firms. As a result, firms reduce their output and may lay off workers to cut costs. This leads to a decrease in GDP and an increase in unemployment, which pushes up wages and prices due to reduced competition among workers. Therefore, adverse aggregate supply shocks result in higher inflation and higher unemployment, which is represented by choice D.

Adverse Aggregate Supply Shocks Would Result In