Which of the following is true about demand shocks?

• A. They do not affect price levels.
• B. They only affect long-run equilibrium.
• C. They shift the aggregate demand curve to the left or right.
• D. They are identical to supply shocks.

Answer: (C)

A demand shock is an unexpected change in overall demand for goods and services at every price level. This shows up as a shift of the entire aggregate demand curve either to the right (higher demand) or to the left (lower demand). The key point is that the shock changes the level of spending in the economy across all prices, not just at one price.

This matters because the new equilibrium in the short run has a different price level and output, and the economy may adjust back toward its long-run trend over time. So the true statement is that demand shocks shift the aggregate demand curve left or right.

Why the other ideas don’t fit: a shift in demand does affect the price level in the short run, so saying it doesn’t affect price levels isn’t accurate; it doesn’t only affect long-run equilibrium, since the short-run impact is what a demand shock first creates; and demand shocks are different from supply shocks, which move the aggregate supply side—not the demand side—of the economy.