Supply shocks cause unemployment and inflation to move in the same direction.

Question

Quizplus · Accepted Answer

When there is a supply shock, such as a decrease in the supply of oil, it can lead to an increase in the price of oil. This increase in the price of oil can then cause an increase in the cost of production for businesses, leading to a decrease in output and an increase in unemployment. At the same time, the increase in the price of oil can also lead to an increase in the price of goods and services, leading to inflation. Therefore, unemployment and inflation move in the same direction in response to a supply shock.

Supply Shocks Cause Unemployment and Inflation to Move in the Same