A negative supply shock causes
A) falling average prices.
B) increased real GDP.
C) decreased unemployment.
D) stagflation.
E) none of the above.

Question

Quizplus · Accepted Answer

A negative supply shock occurs when there is a sudden decrease in the supply of a key input, such as oil or labor. This results in an increase in the cost of production, leading to an increase in the prices of goods and services, and a decrease in the quantity produced. This combination of rising prices and falling output is known as stagflation. Therefore, the best choice is D.

A Negative Supply Shock Causes