Question

An economy is hit by a cost-push shock due to a sharp

Q: Answer-An economy is hit by a cost-push shock due to a sharp rise in input prices, resulting in higher infl...

A negative supply shock like rising oil prices increases inflation while reducing output, leading to higher unemployment and inflation simultaneously. The Phillips Curve shifts rightward, showing a worse inflationunemployment trade-off.

rise in input prices, resulting in higher inflation and rising unemployment in the short run. How does this affect the short run Phillips Curve?

A It shifts rightward, indicating a deterioration in the inflation–unemployment trade-off

B It shifts leftward, reflecting lower inflation at each level of unemployment

C It remains unchanged as the shock affects only output

D The economy moves downward along the existing curve

E The curve becomes vertical immediately

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An economy is hit by a cost-push shock due to a sharp

Solution