A political economic shock comes from state or non-state actors and is sometimes based on politically motivated actions. Technically, it is an unpredictable change in exogenous factors — that is, factors unexplained by an economic model — which may influence endogenous economic variables. 48 synonyms of shock from the Merriam-Webster Thesaurus, plus 133 related words, definitions, and antonyms. Anticipated events, such as demographic trends, are generally priced into the marketplace. Many, but not all, economists also say that a shock … Monetary policy refers to the actions undertaken by a nation's central bank to control money supply and achieve sustainable economic growth. Long-term trends aren’t considered economic shocks because the economy has time to adjust.
In the context of microeconomics, shocks are also studied at the household level, such as health, income, and consumption shocks. A downward economic shock does not necessarily mean you should pull entirely out of the market.
While there is not an absolute consensus among scholars about the definition of an economic shock, there are four features that commonly are understood to define an economic shock. These are unanticipated events that create value, boost productivity, create new jobs in new industries or otherwise help make the economy stronger in some significant way. A technological shock comes from any area that relies on technology in some way. A weak job market is the classic demand-side economic shock. Economists sometimes refer to demand side shocks as "non-technological shocks.". An optimal currency area is the geographic area in which a single currency would create the greatest economic benefit. For example, any significant increase in the price of oil can create a macroeconomic shock on a global scale by increasing the price to transport, produce and use most products. A crash in stock or home prices can cause a negative demand shock as households react to a loss of wealth by cutting back sharply on consumption spending. Because markets and industries are interconnected in the economy, large shocks to either supply or demand in any sector of the economy can have far-reaching macroeconomic impact. Economic shocks have widespread and lasting effects on the economy, and are the root cause of recessions and economic cycles in Real Business Cycle Theory. Individual industries or geographic areas can suffer local or regional economic shocks, but the more local the event is the less likely it is to meet the definition. This has led some economists to argue that an economic shock doesn’t need to be exogenous. Finding the right financial advisor who fits your needs doesn’t have to be hard. , Learn how and when to remove this template message, https://en.wikipedia.org/w/index.php?title=Shock_(economics)&oldid=980105034, Articles needing additional references from July 2008, All articles needing additional references, Creative Commons Attribution-ShareAlike License, This page was last edited on 24 September 2020, at 16:56. Positive economic shocks are linked to an increase in trust in government institutions. However, people also often refer to shocks specifically originating from the technology sector as technology shocks. Upward economic shocks help the economy. An economic downturn in the economy of a major export market can create a negative shock to business investment, particularly in export industries. We’ll explain what is and isn’t considered an economic shock, the different types of economic shocks and some historical examples of economic shocks. Some of the most common, however, are: Weather and natural disasters can cause both downward and upward economic shocks. Economic shocks can come from many different sectors. The response of economic variables, such as production and employment, at the time of the shock and at subsequent times, is measured by an impulse response function.. When things go south. Because modern economies are so deeply dependent on the flow of liquidity and credit to fund normal operations and payrolls, financial shocks can impact every industry in an economy.
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