What impact will a negative supply shock have on the main measures of economic performance?
A) Real GDP will increase, inflation will increase, and unemployment will decrease
B) Real GDP will decrease, inflation will decrease, and unemployment will increase
C) Real GDP will decrease, inflation will increase, and unemployment will increase
D) Real GDP will increase, inflation will decrease, and unemployment will decrease

Question

Quizplus · Accepted Answer

A negative supply shock refers to any unexpected event that reduces the supply of goods and services in an economy, such as a natural disaster, disruption in supply chains, or sudden increase in production costs. As a result, prices of goods and services typically increase due to the shortage, leading to inflation. Additionally, businesses may need to reduce output or shut down operations, causing an increase in unemployment. Consequently, Real GDP will decrease. Therefore, the correct answer is C.

What Impact Will a Negative Supply Shock Have on the Main