ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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raises; lowers; negative
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raises; raises; ambiguous
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lowers; raises; negative
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lowers; raises; positive
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Detailed explanation-1: -In the short run, an economy-wide negative supply shock will shift the aggregate supply curve leftward, decreasing the output and increasing the price level.
Detailed explanation-2: -Here’s what will happen: As a result of the negative supply shock, output goes down, but inflation and unemployment go up. The increase in unemployment will theoretically lead to lower wages (because their is less competition for labor, so firms do not have to compete for workers with higher wages).
Detailed explanation-3: -If no actions are taken by decision-makers of monetary (and fiscal) policy, the economy would have to weather on its own the effects from the temporary negative supply shock. In the short-run, then, inflation would increase whereas aggregate economic activity would drop below its potential level.
Detailed explanation-4: -Negative supply shock causes the slope of the production function to decrease at every level of output (the production function shifts downward).