What is a demand shock?

A demand shock refers to a sudden and unexpected change in the demand for goods and services within an economy, resulting in a shift in aggregate demand. This can occur due to various factors, such as changes in consumer preferences, government policies, or external economic events. When there is an increase in demand, it shifts the aggregate demand curve to the right, leading to higher prices and increased output in the short term. Conversely, if there is a decrease in demand, the curve shifts to the left, resulting in lower prices and reduced output.

In contrast, changes in technology represent a supply-side factor that can affect production capabilities rather than directly altering demand. An increase in input prices also pertains to supply conditions, impacting the costs of production instead of consumer demand. Seasonal weather changes can affect supply and production levels, but they don’t inherently lead to a sudden shift in aggregate demand. Thus, the correct identification of a demand shock as a shift in aggregate demand effectively captures the essence of how external factors can influence the overall economic landscape.