A demand shock occurs when there is a sudden and significant change in the demand for goods and services in an economy. This can happen due to various factors, such as changes in consumer preferences, economic events, or government policies. For example, if a new product becomes popular, it can lead to a rapid increase in demand, while a recession might cause a sharp decline in consumer spending. Demand shocks can have wide-ranging effects on the economy. When demand increases, businesses may struggle to keep up, leading to higher prices and potential shortages. Conversely, a decrease in demand can result in lower production, layoffs, and reduced economic growth. Understanding demand shocks is crucial for policymakers and businesses to navigate economic fluctuations effectively.