Question

If a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift?

Answer 1

Aggregate demand left.

What Is a Supply Shock?

A supply shock is an unanticipated occurrence that abruptly alters the supply of a good or commodity, causing an unanticipated shift in price. Supply shocks can be positive, resulting in an increased supply, or negative, resulting in a lower supply; however, they are frequently negative. A negative (or adverse) supply shock drives up the price of a product, whereas a positive supply shock drives it down, assuming that overall demand remains constant.

A shift in the supply curve to the right caused by an increase in output and a positive supply shock lowers prices, whereas a reduction in production and a negative supply shock raises prices. Any unforeseen event that reduces output or upsets the supply chain has the potential to cause supply shocks.

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