Suppose an economy is initially in long-run equilibrium and it then experiences a supply shock in the form of exceptionally high energy prices. Which of these will be true in this economy?
a. The short-run aggregate supply curve will shift leftward, and the long-run supply curve will shift rightward.
b. The short-run aggregate supply curve and the long-run supply curve will shift rightward.
c. The short-run aggregate supply curve will not shift, and the long-run aggregate supply curve will shift rightward.
d. The short-run aggregate supply curve will shift rightward, but the long-run aggregate supply curve will not shift.
e. The short-run aggregate supply curve and the long-run supply curve will shift leftward.
Question 2
In the long run, an expansionary monetary policy will lead to:
a. a decrease in aggregate expenditure.
b. an increase in unemployment.
c. an increase in the price level.
d. an increase in potential output.
e. a decrease in the price level.
Classification of Shock
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