raise the inflation rate and the output ratio. This is called automatic adjustment process. a. rise and the short-run Phillips curve to shift right. maintain the output ratio but allow inflation to increase. QuestionQuestion Points1. Thus, an adverse supply shock gives dual blow to the economy, that is, higher price and low output level. b. rise and the short-run Phillips curve to shift left. In this case, the shift of the short-run Phillips curve to the right corresponds to a shift of the upward-sloping AS-curve to the left. An adverse supply shock causes inflation to a. rise and the short-run Phillips curve to shift right. c. represents an adverse shock to aggregate supply. A supply shock is an event that suddenly increases or decreases the supply of a commodity or service, or of commodities and services in general.This sudden change affects the equilibrium price of the good or service or the economy's general price level.. Refer to Figure 22-8. 9. One of the best examples of this situation is the oil crisis in the early 1970’s, which led to the rise of gas prices in North America and other sections of the world. Given an adverse supply shock, an "accommodating policy" will. A reduction in GNP implies an increase in unemployment rate and occur­rence of recession. Given an adverse supply shock, a "neutral policy" will An adverse supply shock causes output to fall and prices to rise. If there is a permanent adverse supply shock A)the rate of inflation can be held constant if real wages are kept from falling. This reduces the amount of wheat in the market, which raises the price, assuming demand remains constant. lower the inflation rate and the output ratio. c. maintain the inflation rate and the output ratio. Thus, an adverse sup­ply shock causes both high inflation and high unemployment rate. A favorable supply shock will cause:a. unemployment to rise and the short-run Phillips curve to shift right.b. An adverse supply shock is often (but not always) a natural event. If the Fed wants to reverse the effects of an adverse supply shock on inflation, it should. Refer to Figure 22-8. Since oil is used in the manufacturing of most goods and services, this was a very large supply shock. d. fall and the short-run Phillips curve to shift left. This leads to the break-down of … The recession of 1974-75 was caused by adverse supply shocks, primarily the Oil Crisis which occurred when the Arab members of the Organization of Petroleum Exporting Countries (OPEC) embargoed petroleum exports, driving up the price of oil. c. fall and the short-run Phillips curve to shift right. For example, a series of severe tornados on farms in western Oklahoma can cause adverse supply shock for wheat. unemployment to rise An increase in money supply causes output to rise and prices also to rise. decrease the money supply growth rate which raises the unemployment rate. 6-31 If an adverse supply shock occurs, unemployment and inflation increase simultaneously. b. if they expand aggregate demand, the inflation rate will increase further. It is a type of supply shock. Thus, adverse supply shock causes cost-puch inflation along with a reduction in the level of GNP. e. fall and the long-run Phillips curve to shift right. 10. People eventually realize that actual inflation is less than expected inflation, so they adjust their inflationary expectations downward. C)the level of employment at the natural level of real GDP will remain constant only if the labor supply curve is upward sloping to the right. The shift of the aggregate-supply curve from AS1 to AS2 . 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