Given the aggregate demand curve, what effects would an adverse supply shock have on output and price level?
A) Output would increase, and price level would increase.
B) Output would increase, and price level would decrease.
C) Output would decrease, and price level would decrease.
D) Output would decrease, and price level would increase.

Question

Given the aggregate demand curve, what effects would an adverse supply shock have on output and price level?  
A) Output would increase, and price level would increase. 
B) Output would increase, and price level would decrease. 
C) Output would decrease, and price level would decrease. 
D) Output would decrease, and price level would increase.

Quizplus · Accepted Answer

An adverse supply shock would decrease the supply of goods and services, leading to a decrease in output. This decrease in supply would also lead to an increase in the price level due to the increased cost of production. Therefore, option D is the correct answer.

Given the Aggregate Demand Curve, What Effects Would an Adverse