A supply shock does not occur when:
A) a drought destroys crops.
B) unions push wages up.
C) the Fed increases the money supply.
D) an oil cartel increases world oil prices.

Question

Quizplus · Accepted Answer

A supply shock occurs when there is an unexpected event that affects the availability or cost of a key input to production, leading to a sudden shift in the short-run aggregate supply curve. Options A (drought destroying crops) and D (oil cartel increasing prices) are examples of events that could lead to a supply shock, as they affect the availability and cost of important input factors such as agricultural produce and oil. Option B (unions pushing wages up) could also lead to a supply shock, as it affects the cost of labor, which is a key input factor. However, Option C (the Fed increasing the money supply) does not constitute a supply shock, as it affects the demand side of the economy and does not directly affect the availability or cost of input factors.

A Supply Shock Does Not Occur When