Figure 8-6
-In the figure above, an adverse supply shock accompanied by a neutral policy take us along path

Question

Figure 8-6 
-In the figure above, an adverse supply shock accompanied by a neutral policy take us along path

Quizplus · Accepted Answer

An adverse supply shock causes an increase in the price level and a decrease in real output. A neutral policy does not attempt to counteract the effects of the supply shock. This takes us along the vertical axis of the AD-AS diagram to point H, which represents a higher price level and lower real output.

Figure 8-6 -In the Figure Above, an Adverse Supply Shock Accompanied by Shock