Economic Shocks

Question 1

What is an economic shock?

Answer 1

unexpected and significant events that lead to a sudden and
substantial impact on key indicators, such as GDP growth, inflation, unemployment, interest rates, and exchange rates.

Question 2

What is a demand-side shock?

Answer 2

A sudden change in AD

Question 3

What is a supply-side shock?

Answer 3

A sudden change in AS

Question 4

What is a positive shock?

Answer 4

A shock that boosts the economy

Question 5

What is a negative shock?

Answer 5

A shock that causes a recession or increase in unemployment or
inflation

Question 6

What is an external shock?

Answer 6

A shock that comes from global events outside the economy

Question 7

What is an internal shock?

Answer 7

A shock that is comes from within an economy

Question 8

Examples of shocks?

Answer 8

Global financial crisis 07-09
Pandemic
Brexit

Question 9

Negative effects of a demand side shock?

Answer 9

• Economic downturn in a major trading partner

• Unexpected tax increases/cuts in welfare

• Financial crisis causing a credit crunch

• Bigger than expected rise in unemployment

*Opposite for positive AD shocks

Question 10

Negative effects of a supply-side shock?

Answer 10

• Steep rise in energy and/or commodity/raw material prices

• Lockdown due to a pandemic

• Natural disasters

• Unexpected breakthroughs in production technology (could be positive)

*Opposite for positive AS shocks

Question 11

What do the impacts of an economic shock depend on?

Answer 11

• The size of the shock & the scale of the shock (regional, global?)

• Likely multiplier effects (positive/negative depending on the shock)

• How temporary/permanent the shock is

• Who the winners and losers are

• How effectively the government responds to the shock

• Opportunities v threats created by the shock