A supply shock is best described as:

A supply shock is best described as:

• A. An event that shifts the short-run aggregate supply curve.
• B. A change in the prices of households' assets causing consumer wealth changes.
• C. The central bank changing the reserve requirements for banks.
• D. A change in foreign exchange rates affecting net exports.

Answer: (A)

A supply shock is a sudden event that changes the economy’s ability to produce goods and services at any given price, so it shifts the short-run aggregate supply (SRAS) curve. It affects production costs or productive capacity, not the overall willingness to spend. For example, a spike in oil prices raises costs for many firms, so at every price level they produce less, shifting SRAS left. Conversely, a technological improvement or cheaper inputs can shift SRAS right, increasing output at each price. This is what the term captures: a supply-side change that moves the SRAS curve itself. The other options describe demand-side influences—changes in household wealth affecting consumption, monetary policy altering the money supply and demand, or exchange rate changes influencing net exports—which primarily shift aggregate demand rather than the supply curve.

A supply shock is a sudden event that changes the economy’s ability to produce goods and services at any given price, so it shifts the short-run aggregate supply (SRAS) curve. It affects production costs or productive capacity, not the overall willingness to spend. For example, a spike in oil prices raises costs for many firms, so at every price level they produce less, shifting SRAS left. Conversely, a technological improvement or cheaper inputs can shift SRAS right, increasing output at each price.

This is what the term captures: a supply-side change that moves the SRAS curve itself. The other options describe demand-side influences—changes in household wealth affecting consumption, monetary policy altering the money supply and demand, or exchange rate changes influencing net exports—which primarily shift aggregate demand rather than the supply curve.