Shocks are unexpected changes in the economy that can affect variables such as the rate of inflation and the growth rate of GDP. In an inter-connected global economy, events in one part of the world can quickly affect many other countries. For example, the global financial crisis (GFC) brought about recession in many countries and financial distress in many regions. It also led to a fall in FDI flows into poorer countries and increased pressure on governments in rich nations to cut overseas aid budgets.
Policies to absorb the effects of an economic shock
Not every country has the ability to respond quickly and effectively to external shocks. Much depends on how severely they are affected by economic events.
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