Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Decrease in aggregate demand leading to potential unemployment
B
Increase in aggregate supply due to higher exports
C
Immediate shift to long-run aggregate supply
D
Full employment is maintained regardless of external factors
Understanding the Answer
Let's break down why this is correct
Answer
When country Alpha's major trading partner goes through a recession, it means that the trading partner is buying less from Alpha. This decrease in demand can lead to fewer jobs in Alpha because companies may need to cut back on production and reduce their workforce. As a result, unemployment may rise, moving the economy away from full employment equilibrium, which is the state where everyone who wants to work can find a job. For example, if Alpha exports cars to the trading partner and they buy fewer cars, car manufacturers in Alpha might have to lay off workers, causing the unemployment rate to increase. Overall, the recession in the trading partner negatively affects Alpha's economy and pushes it away from full employment.
Detailed Explanation
When a major trading partner has a recession, they buy less from Alpha. Other options are incorrect because Some might think that a recession means more exports; People may believe that a recession leads to an immediate change in long-run supply.
Key Concepts
Full Employment Equilibrium
Aggregate Demand and Supply
Monetary Policy
Topic
Full Employment Equilibrium
Difficulty
medium level question
Cognitive Level
understand
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