How both demand-side and supply-side shocks affect the macroeconomy
A shock is a sudden, unexpected event that shifts either total spending or total output in the economy. Demand-side shocks move the AD curve; supply-side shocks move the AS curve.
Real World
The 2022 Russian invasion of Ukraine was a negative supply-side shock: oil and wheat prices spiked globally, shifting SRAS left and causing stagflation — rising prices alongside falling output — in many European economies.
Exam Focus
For evaluation marks, always discuss the opposing effects of demand vs supply shocks on output and price level simultaneously.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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