Question

A favorable supply shock a. raises unemployment and the inflation rate. b. reduces unemployment and the...

A favorable supply shock

a.

raises unemployment and the inflation rate.
b.

reduces unemployment and the inflation rate.
c.

reduces unemployment and raises the inflation rate.
d.

raises unemployment and reduces the inflation rate.
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Answer #1

A favorable supply shock reduces unemployment and the inflation rate.

Reason is: A favorable supply shock is a sudden increase in supply that shifts the short-run aggregate supply curve to the right and results in lower prices and an increase in real GDP. Favorable supply shocks result in: lower costs. Lower prices. A favorable supply shock is a sudden increase in supply that shifts the short-run aggregate supply curve to the right and results in lower prices and an increase in real GDP. Favorable supply shocks result in lower unemployment.

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