Adverse aggregate supply shocks would result in
A) a lower rate of inﬂation and a higher rate of unemployment.
B) a higher rate of inﬂation and a lower rate of unemployment.
C) a lower rate of inﬂation and a lower rate of unemployment.
D) a higher rate of inﬂation and a higher rate of unemployment.

Question

Quizplus · Accepted Answer

Adverse aggregate supply shocks, such as an increase in the prices of key inputs (e.g. oil prices, wages) or a supply shock due to natural disasters or conflicts, would lead to an increase in production costs and a decrease in the amount of output that firms can produce. This would lead to higher prices (inflation) and lower output levels, resulting in a reduction in employment and a higher rate of unemployment. Therefore, the best choice is D.

Adverse Aggregate Supply Shocks Would Result in