ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A supply shock is an unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price. A positive supply shock increases output, causing prices to decrease, while a negative supply shock decreases output, causing prices to increase.

Detailed explanation-2: -If no actions are taken by decision-makers of monetary (and fiscal) policy, the economy would have to weather on its own the effects from the temporary negative supply shock. In the short-run, then, inflation would increase whereas aggregate economic activity would drop below its potential level.

Detailed explanation-3: -This situation is known as a supply shock. It’s a temporary disruption that often occurs without warning, due to a one-time event, like a stranded oil tanker blocking other ships from accessing a trade route, or longer-term issues, such as a war, an embargo, or a global health crisis.

Detailed explanation-4: -Negative shocks decrease output and increase unemployment. Positive shocks increase production and reduce unemployment. The effect on inflation, however, will depend on whether the shock was a supply shock or a demand shock.

Detailed explanation-5: -Raise interest rates to reduce inflationary pressure. Cut interest rates to boost economic growth. 12-Nov-2019