What is a supply shock? Give an example of a current supply shock. Which way does this shock move the AS curve? What is the resulting impact on potential GDP and the price level?
A supply shock is an unexpected event that disrupts the production capacity and availability of goods and services in an economy. It can be caused by various factors such as natural disasters, geopolitical conflicts, technological failures, or changes in costs of inputs.
To find an example of a current supply shock, you can follow these steps:
1. Stay updated with the latest news and economic reports.
2. Look for any sudden changes in production or availability of goods and services that are affecting various sectors or industries.
3. Focus on events that may have widespread impact on the economy and result in changes in potential GDP and the price level.
As an AI, I don't have access to real-time data or the ability to browse the internet. However, as of August 2021, an example of a supply shock could be the global semiconductor shortage. Due to disruptions in the supply chain caused by the COVID-19 pandemic and increased demand for electronic devices, a shortage of semiconductors has occurred. This shortage has affected various industries, including automotive, consumer electronics, and computer manufacturers, leading to production delays and increased prices for end consumers.
When a supply shock occurs, it affects the aggregate supply (AS) curve. In the case of a negative supply shock like a supply shortage, the AS curve shifts to the left. This is because the economy's ability to produce goods and services becomes limited, resulting in a decrease in potential GDP.
The impact on potential GDP and the price level depends on the specific circumstances. In the case of a negative supply shock, potential GDP may decrease because the economy is unable to produce as much output compared to the previous level. The shortage of supply also creates upward pressure on prices due to the increased demand and limited availability of goods and services. As a result, the price level tends to rise.
It's important to note that supply shocks and their effects on the AS curve can vary in magnitude and duration, and their impacts on potential GDP and the price level can also depend on other factors in the economy.