After a temporary adverse supply shock hits the economy, general equilibrium is restored by a shift down and to the left of the IS curve. a shift up and to the left of the LM curve. a shift down and to the right of the IS curve. a shift to the left of the FE line.

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After a temporary adverse supply shock hits the economy, general equilibrium is restored by a shift down and to the left of the IS curve

Economics Nov 11, 2020

After a temporary adverse supply shock hits the economy, general equilibrium is restored by

		a shift down and to the left of the IS curve.
		a shift up and to the left of the LM curve.
		a shift down and to the right of the IS curve.
		a shift to the left of the FE line.

Expert Solution

Answer: Option A is correct. As there is a temporary of an adverse effect of supply shock in the economy , general Equilibrium can be restored by shift down and to the left of the IS curve in logical manner. It means that there is a negative supply shock in an economy which held there has been higher cost, higher prices and lower level of real GDP.

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