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What is the effect of an adverse supply shock? a. The long-run aggregate supply curve shifts...

What is the effect of an adverse supply shock?

a. The long-run aggregate supply curve shifts to the left.

b. The short-run aggregate supply curve shifts to the right.

c. The long-run Phillips curve shifts to the left.

d. The short-run Phillips curve shifts to the right.

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Answer #1
  • Option d is the answer.
  • The short run Phillips curve shifts to the right.
  • An adverse shock happens when the supply of goods and services are tremendously decreased for a temporary period. It will shift the short run aggregate supply curve to the left, which results in a higher inflation. Phillips curve shows that inflation and unemployment have inverse relationship. Thus the short run Phillips curve will shift to the right showing an increased rate of inflation .
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