fundamental shock

The term "fundamental shock" in economics refers to an unexpected event that significantly disrupts the normal functioning of an economy. These shocks can originate from various sources, including natural disasters, technological advancements, political upheavals, or sudden shifts in consumer behavior.1

These events can lead to a "fundamental disequilibrium," where a country's international payments become unbalanced due to factors like rising costs, increased demand exceeding supply, or the impact of events like wars. The banking system can amplify these shocks, turning small fluctuations into major cycles of prosperity and depression. Economists like Knut Wicksell emphasized how interest rates can influence economic activity, while theories such as rational expectations suggest that people anticipate and adjust to policy changes, potentially undermining intended outcomes.12