What is one potential outcome of a supply shock?

A supply shock typically refers to an unexpected event that suddenly changes the supply of a product or a commodity. This can occur due to various factors such as natural disasters, geopolitical tensions, or changes in regulatory policies. When a supply shock happens, it often leads to increased prices because the supply of goods has been disrupted while demand remains unchanged.

In this scenario, higher production costs or reduced availability of resources can push prices up, resulting in inflationary pressures. Additionally, this disruption can create altered economic conditions, affecting everything from consumer spending to employment levels as businesses adjust to the new supply landscape. Hence, choosing the outcome that identifies both increased prices and altered economic conditions reflects the reality of how supply shocks impact the economy, making this choice the correct one.

This context highlights why other outcomes such as a decrease in prices, stability in economic conditions, or an immediate recovery in output do not accurately characterize the typical effects of a supply shock.