Shocks

Definition

Shocks refer to unexpected events or changes that impact an economy's equilibrium by shifting either aggregate demand or aggregate supply curves. These shocks can be positive (expansionary) or negative (contractionary), leading to temporary disruptions in the economy.

Related terms

Demand Shock: A sudden change in aggregate demand caused by factors such as changes in consumer spending or investment levels.

Supply Shock: A sudden change in aggregate supply caused by factors such as changes in input prices or natural disasters.

Stabilization Policies: Government policies aimed at reducing the impact of shocks and stabilizing the economy, such as fiscal and monetary policies.