Economic Shocks & Policy Responses

Economic shocks are sudden, unexpected events that disrupt the normal functioning of an economy, causing sharp changes in output, employment, prices, or financial markets. Shocks can be short-term or long-lasting, domestic or global.

Economic Impact of Shocks

Economic shocks typically lead to:

• GDP contraction or overheating
• Rising unemployment
• Inflation or deflation pressures
• Exchange rate instability
• Increased market volatility and uncertainty

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Real-world Examples

Key Takeaway

Economic shocks are unavoidable, but timely, flexible, and well-coordinated policy responses can significantly reduce economic damage and speed up recovery.