Both positive nor negative supply shocks
A)Change AD.
B)Permanently change real output in an economy.
C)Change the price level in the long run.
D)None of the above are true

Question

Both positive nor negative supply shocks
A)​Change AD.
B)​Permanently change real output in an economy.
C)​Change the price level in the long run.
D)​None of the above are true

Quizplus · Accepted Answer

A positive supply shock would increase real output and decrease prices in the short run, whereas a negative supply shock would decrease real output and increase prices in the short run. However, if the supply shock is neither positive nor negative (i.e. it does not significantly affect the level of output), then it would not cause a shift in aggregate demand or a permanent change in real output. Instead, it would result in a change in the price level in the long run, as the economy adjusts to the new equilibrium. This is because the price level is ultimately determined by the equilibrium between aggregate demand and aggregate supply in the long run, and changes in supply only affect the equilibrium level of output in the short run.

Both Positive nor Negative Supply Shocks