All of the following are likely results of a negative demand shock EXCEPT
A) a negative output gap.
B) lower inflation.
C) the IS curve shifts to the left.
D) the Phillips curve shifts to the left.

Question

Quizplus · Accepted Answer

A negative demand shock would cause a decrease in overall demand for goods and services, which would lead to a decrease in output (i.e. negative output gap) and lower prices (i.e. lower inflation). This would cause the IS curve to shift to the left, as there is less demand for goods and services at any given interest rate. However, the Phillips curve would shift to the right, as lower demand would lead to higher unemployment and therefore a decrease in wages and inflation. Therefore, option D is incorrect.

All of the Following Are Likely Results of a Negative