What is a supply shock, and why might a supply shock lead to stagflation?
What will be an ideal response?
A supply shock is an unexpected event that causes a shift in short-run aggregate supply. An adverse supply shock causes the short-run aggregate supply curve to shift to the left, causing an increase in the price level and a decrease in real GDP. An increase in the price level occurring at the same time as a decrease in real GDP is known as stagflation.
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The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output. B. government policy. C. decreasing inflation only. D. increasing or decreasing inflation.
If a perfectly competitive firm's marginal revenue is greater than its marginal cost, as it increases its output, its profit ________ and the price it can charge for its product ________
A) increases; does not change B) decreases; falls C) increases; falls D) decreases; rises E) decreases; does not change
When can a grim trigger prevent oligopolists from breaking an agreement?
If not corrected, the financial sector crisis of late 2008 would have tended to
A. increase both Real GDP and the general price level. B. increase Real GDP and lower the general price level. C. lower both Real GDP and the general price level. D. lower Real GDP and increase the general price level.