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Adverse Supply Shock

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Adverse Supply Shock
Any sudden event that dramatically but (usually) temporarily decreases supply for one or more goods or services. An adverse supply shock is often (but not always) a natural event. For example, a series of severe tornados on farms in western Oklahoma can cause adverse supply shock for wheat. This reduces the amount of wheat in the market, which raises the price, assuming demand remains constant. It is a type of supply shock.


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adverse supply shocks in the 1970s), the significant short-term PC disappears quickly.
It is argued that the former (the collapse of output during transition) can be best explained as adverse supply shock caused mostly by a change in relative prices after their deregulation due to distortions in industrial structure and trade patterns accumulated during the period of central planning, and by the collapse of state institutions during transition period, while the speed of liberalisation had an adverse effect on performance, if any.
An inflation target requires the central bank to tighten in response to an adverse supply shock and to ease monetary policy in response to a favorable supply shock, compounding the change in real output resulting from the supply shock.
 
 
 
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