Analyzing a Negative Supply Shock

An economist wants to determine the pure, initial impact of a sudden nationwide crop failure on the inflation rate. To conduct this specific type of analysis, which of the following correctly identifies the necessary assumption about the rest of the economy and the resulting conclusion?

When using a model to isolate the initial inflationary impact of a negative supply shock (e.g., a sudden increase in oil prices), the analysis assumes that the resulting higher prices will cause a decrease in aggregate spending, leading to lower output.

Rationale for an Analytical Assumption in Inflation Analysis