Chapter 45, Problem 7MCQ

To determine

The correct option depicting the impact of LRAS and economic growth if there will be a decrease in country U’s tourism to country M due to flu breakout.

Answer to Problem 7MCQ

Option e is correct.

Explanation of Solution

Explanation for the correct option:

e.

There is no change in LRAS and no change in Long run growth. As the breakout of the flu is short-term, there is a temporary change in the market but there is no effect on long-run economic growth. Therefore, option e is the correct answer.

Explanation for incorrect options:

a.

Shifting the LARS towards the right and left will be temporary as in long run it will not influence growth. Therefore, option a is incorrect.

b.

There will be no change in the long-run aggregate supply as the flu outbreak is temporary. Therefore, option b is incorrect.

c.

Any shift in supply will be temporary and it does not affect the long-run aggregate supply curve. Therefore, option c is incorrect.

d.

Long-run growth will remain unchanged as the flu outbreak occurred for the short term. Therefore, option d is incorrect.

Economics Concept Introduction

International trade: International trade is an exchange of goods and services across nations. This is due to globalization and comparative advantage. It means goods are produced in one country and are sold in some other country.