A favorable supply shock
A)pushes the aggregate demand curve to the right.
B) shifts aggregate supply to the right.
Shifts aggregate supply to the left
C) shifts aggregate demand to the left.
D)shifts aggregate demand to the right.
E) has no effect on either the aggregate supply or aggregate demand, only on the quantities supplied and demanded.

Question

Quizplus · Accepted Answer

A favorable supply shock is a positive event that increases the productivity and efficiency of the economy. This, in turn, reduces the unit cost of production and results in a shift of the aggregate supply curve to the right. As such, the economy can produce more output at the same price level, leading to a higher real GDP, lower prices, and higher employment levels. Thus, choice B is correct.

A Favorable Supply Shock