Macroeconomics

Topic
Aggregate Supply
Supply Shock
Stagflation
 Aggregate Supply
• Aggregate supply refers to the total amount of goods and services that an
economy produces over a given period of time, such as a year. It is
represented by the aggregate supply curve, which shows the relationship
between the price level and the quantity of goods and services that firms are
willing to produce and sell.
 Example
• In 2020, the COVID-19 pandemic caused significant
disruptions to global supply chains and production processes,
resulting in a decrease in aggregate supply. For example, the
lockdown measures in many countries led to factory shutdowns
and reduced productivity, which caused a decrease in the
production of goods and services.
Supply Shock
• A supply shock is an unexpected event that affects the production
or supply of goods and services in an economy. It can be positive
or negative and can arise from a variety of sources, such as natural
disasters, geopolitical events, technological advancements, or
changes in government policy.
Example
• In 2021, the Suez Canal was blocked by a
container ship for several days, disrupting
global trade and causing a supply shock. The
blockage prevented hundreds of ships from
passing through the canal, leading to delays in
the delivery of goods and increased shipping
costs.
Stagflation
• Stagflation is a term used to describe an economic phenomenon
where an economy experiences both high inflation and low
economic growth at the same time, which is typically considered
an unusual combination.
Example
• In 2021, many countries experienced a surge in inflation due to a
combination of factors, such as supply chain disruptions, higher
commodity prices, and increased demand for goods and services as
economies reopened after the pandemic. However, the economic
growth remained sluggish due to ongoing restrictions and uncertainty,
resulting in stagflation. For example, the US saw an inflation rate of
6.2% in October 2021, the highest since 1990, while the GDP growth
rate for the same quarter was just 2.3%.