What is shock therapy?
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What Is Shock Therapy?
In economics, shock therapy theorizes that sudden, dramatic changes in national economic policy can turn a state-controlled economy into a free-market economy. Shock therapy is intended to cure economic maladies—such as hyperinflation, shortages, and other effects of market controls—to jump-start economic production, reduce unemployment, and improve living standards.
However, shock therapy can entail a rocky transition while prices increase from their state-controlled levels and people in formerly state-owned companies lose their jobs, creating civil unrest that may lead to forced changes in a country's political leadership.
KEY TAKEAWAYS
- Shock therapy is an economic theory that says that sudden, dramatic changes in national economic policy can turn a state-controlled economy into a free-market economy.
- Shock therapy is intended to boost economic production, increase the rate of employment, and improve living conditions.
- Economic policies in favor of shock therapy include ending price controls and government subsidies.
- Shock therapy can have a negative impact on the economy, causing unemployment to increase and civil unrest.
What is shock therapy?
In economics, shock therapy is the sudden release of price and currency controls, withdrawal of state subsidies, and immediate trade liberalization within a country, usually also including large-scale privatization of previously public-owned assets