Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases aggregate demand, potentially moving the economy away from full employment.
B
It increases aggregate supply, leading to a surplus in the economy.
C
It has no effect on the domestic economy since it only affects external markets.
D
It automatically increases employment levels in the affected country.
Understanding the Answer
Let's break down why this is correct
Answer
When a major trading partner goes into a recession, it means they are buying less from other countries, including yours. This decrease in demand for goods and services can lead to lower production levels in your country, which may cause businesses to cut back on hiring or even lay off employees. As a result, the overall unemployment rate may rise, moving the economy away from full employment equilibrium, where everyone who wants a job can find one. For example, if a country known for exporting cars faces a recession, it may sell fewer cars abroad, leading to job losses in factories back home. This shift can disrupt the balance in the job market and make it harder for people to find work.
Detailed Explanation
When a major trading partner has a recession, they buy less from other countries. Other options are incorrect because Some might think that a recession increases supply, but it actually reduces demand; It's a common belief that external issues don't affect local economies.
Key Concepts
Full Employment Equilibrium
Aggregate Demand and Supply
Economic Interconnectedness
Topic
Full Employment Equilibrium
Difficulty
easy level question
Cognitive Level
understand
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