AP Macroeconomics Question 59: Answer and Explanation
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9. Droughts, technical glitches, and restrictions on the use of resources can all result in
- A. a vertical Phillips curve
- B. supply shocks
- C. structural shocks
- D. demand-pull inflation
- E. deflation
Correct Answer: B
B Each of these events would shift the AS curve to the left, increasing inflation and unemployment. A vertical Phillips curve implies that unemployment is constant, so that is ruled out, as is deflation. Demand-pull inflation is caused by an increase in aggregate demand, not a decrease in aggregate supply. Structural shocks result from changes in the structure of aggregate demand. These events described are all sources of supply shocks.