macro5-2 - real GDP falls. The fall in output means that...

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A supply shock is a sudden change, unexpected events that affect aggregate supply, sometimes only temporarily. An adverse supply shock is one that causes supply to go down. It could be a result from natural disasters such as floods or earthquakes; from human, animal, or plant diseases; or from major political upheavals such as war or revolution. This is something like an oil embargo. If all of a sudden the US economy can get much less oil, the supply of pretty much everything will fall and prices will rise. As a result, the price level increases and
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Unformatted text preview: real GDP falls. The fall in output means that unemployment rises. By contrast, a beneficial supply shock causes supply to go up. This would be what would happen if a new invention caused the price of producing a product to go down suddenly. This would increase supply and the sale price of the good would decrease. Macro 2 ECON, Student edition pages 164-166, by William A. McEachern...
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