ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In the context of history, supply shocks have been caused by things like weather, war and labor strikes. For example, the 1973-74 oil embargo, in which OPEC members retaliated against the U.S. and other nations for supporting Israel, caused gas shortages and long lines at the pump.

Detailed explanation-2: -Traditionally, oil supply shocks arose because of civil unrest in oil-producing countries or because military conflict resulted in the destruction of oil-production facilities, as in the case of Iraq’s invasion of Kuwait in 1990.

Detailed explanation-3: -For example, the imposition of an embargo on trade in oil would cause an adverse supply shock, since oil is a key factor of production for a wide variety of goods. A supply shock can cause stagflation due to a combination of rising prices and falling output.