Question

what is shock therapy?​

Answer 1

Answer:

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.

Explanation:

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Answer 2

Answer:

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.

How Shock Therapy Works

The term "shock therapy" refers to the concept of figuratively shocking, or shaking up, the economy, with sudden and dramatic economic policies that affect prices and employment. Characteristics of shock therapy include the ending of price controls, the privatization of publicly-owned entities, and trade liberalization.

The opposite of shock therapy, gradualism, indicates a slow and steady transition from a controlled economy to an open economy. An open economy is generally considered to be a more responsible and effective strategy for improving an economy.

In general, policies that support shock therapy will involve:

• Ending price controls
• Stopping government subsidies
• Moving state-owned industries to the private sector
• Tighter fiscal policies, such as higher tax rates and lowered government spending
• Shock therapy could also include policies to reduce inflation and budget deficits, or policies that reduce current account deficits and restore competitiveness.