📚 Learning Guide
Economic Recovery and Supply Shifts
hard

How does economic recovery influence short-run aggregate supply in comparison to long-run aggregate supply when a country is recovering from a recession?

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Choose the Best Answer

A

Short-run supply increases due to higher demand, while long-run supply remains unchanged.

B

Both short-run and long-run supply increase simultaneously as the economy recovers.

C

Short-run supply may increase due to temporary factors, while long-run supply is affected by structural changes.

D

There is no impact of economic recovery on either short-run or long-run aggregate supply.

Understanding the Answer

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Answer

Economic recovery affects short-run aggregate supply differently than long-run aggregate supply. In the short run, as a country recovers from a recession, businesses start to increase production quickly to meet rising demand. This can lead to a temporary increase in short-run aggregate supply, as companies hire more workers and use existing resources more intensively. For example, if a factory that was underused during a recession begins to operate at full capacity, it can produce more goods quickly. However, in the long run, aggregate supply is influenced by factors like technology, resources, and overall productivity, which take more time to improve, leading to a stable level of output that reflects the economy's full potential.

Detailed Explanation

During recovery, short-run supply can rise quickly due to temporary boosts like increased spending. Other options are incorrect because This answer suggests that long-run supply does not change at all; This option implies both supplies change at the same time.

Key Concepts

Economic Recovery
Aggregate Supply
Short-run vs. Long-run Supply
Topic

Economic Recovery and Supply Shifts

Difficulty

hard level question

Cognitive Level

understand

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