A supply shock is defined as
A) a decrease in full-employment output.
B) a surprise event that changes the firm's production costs.
C) a reduction in aggregate demand that has a negative impact on the firm's revenue.
D) a sudden upward movement along the short-run aggregate supply curve.
E) an attempt by employees to negotiate a wage increase.

Question

Quizplus · Accepted Answer

A supply shock refers to a surprise event that disrupts production and changes the firm's production costs, such as an increase in the price of raw materials or a natural disaster that damages production facilities. This shock can lead to a shift in the short-run aggregate supply curve, resulting in a temporary increase or decrease in output and inflation. Therefore, option B is the best choice. The other options either refer to different concepts or are not accurate definitions of a supply shock.

A Supply Shock Is Defined as