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    Beneficial and adverse supply shocks

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    What are supply shocks? Distinguish between beneficial and adverse supply shocks. Do such shocks affect the short-run supply curve, the long-run supply curve, or both? What is the resulting impact on potential GDP?

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    Supply shock: A disruption of market equilibrium caused by a change in a supply determinant and a shift of the supply curve. A supply shock can take one of two forms--a supply increase or a supply decrease. This is one of two disruptions of the market. The other is a demand shock.

    A supply shock to the market results when the supply curve is shifted due to a change in one of the five supply determinants--resource prices, production technology, ...

    Solution Summary

    The solution distinguishes between beneficial and adverse supply shocks.