A negative demand shock combined with a positive supply shock has no effect on the level of average prices.

Question

Quizplus · Accepted Answer

A negative demand shock would typically lead to lower prices, while a positive supply shock would typically lead to higher output and lower prices. Therefore, the two shocks combined would likely have an ambiguous effect on prices, but it is unlikely that there would be no effect at all.

A Negative Demand Shock Combined with a Positive Supply Shock