Chapter 19, Problem 1MCQ

To determine

The correct option which causes a negative supply shock

Answer to Problem 1MCQ

From the available options, the correct option is an increase in oil prices.

Explanation of Solution

The supply shock would be positive when supply shock increases the output/productivity or demand by decreasing the price of goods and it would be negative when it decreases the output/productivity or demand by increasing the price of goods. Therefore, the correct option is increase in oil prices. Whereas, increase in productivity, advancement in technology, decrease in consumption and government spending do not cause negative supply shock. As if there is more productivity in the economy, continuous update in technology, and people consume less quantity of goods then there is positive supply in the country as there would be an increase in quantity supplied.

Therefore, the correct option is c (an increase in oil prices).

Economics Concept Introduction

Introduction: Any unexpected or uncertain event that cause the supply of goods and services in the market which in turn also affect the price of those goods and service is called supply shock.