The usual results of an adverse supply shock are
(1) a rise in prices and a rise in output.
(2) a rise in prices and a fall in output.
(3) increased growth and lower inflation.
(4) a fall in prices and a rise in output.

When an adverse supply shock occurs, such as a natural disaster or a sudden increase in the cost of raw materials, businesses experience higher production costs. This typically leads to higher prices for consumers while simultaneously causing a reduction in overall output as companies may scale back production due to increased expenses. Thus, the combination of rising prices and falling output, which aligns with option (2), is a classic economic outcome of such shocks.

To illustrate, think about the oil crisis of the 1970s: the limits on oil production surged gas prices and consequently led to economic stagnation. Consumers faced high prices at the pump while many industries that depended on cheap oil struggled to maintain their output, showing how closely tied supply shocks are to inflation and production levels.