manchester88

Which of the following is most representative of an exogenous economic shock?

A) A hurricane hitting the Gulf of Mexico resulting in the shut-down of many oil wells and refineries and to higher oil prices.

B) Ongoing expansionary fiscal policy by the federal government leading to higher inflation and interest rates.

C) Anticipated loose monetary policy by a country’s central bank leading to inflation and to depreciation in the country’s currency.

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An exogenous shock is something that occurs outside the normal course of an economy, such as a natural disaster or unanticipated government policy. The shock is unanticipated and is not part of a trend as would be characterized by ongoing monetary or fiscal policy.