An adverse supply shock causes inflation to

Question

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An adverse supply shock, such as a sudden increase in oil prices, typically leads to higher production costs, which in turn cause prices to rise (inflation). In the context of the Phillips curve, which illustrates the inverse relationship between the rate of inflation and the rate of unemployment, this scenario results in the short-run Phillips curve shifting to the right. This shift indicates that for any given rate of unemployment, the rate of inflation is higher after the shock than it was before.

An Adverse Supply Shock Causes Inflation to