Chapter 4R, Problem 14MCQ

To determine

To determine an example of a positive demand shock.

Explanation of Solution

A large increase in defense spending will boost the demand as the government is spending a lot to prevent the slowdown. Hence, it is a positive demand shock in the economy.

The stock market crash of 1929 is a negative demand shock and not a positive demand shock.

The new discovery of the oil field is a positive supply shock and not a demand shock.

Reduction in aggregate price level is not a demand shock.

An increase in nominal wages is not a demand shock.

Hence, option ‘a’ is the correct option.

Economics Concept Introduction

A demand shock is a sudden unexpected event that dramatically increases or decreases demand for a product or service. A positive demand shock is a sudden increase in demand which will boost the economy and prevent a slowdown.