Asked by Keiona Wedderburn on May 11, 2024
Verified
Suppose a recession in Europe reduces U.S. net exports at every price level. Which of the following would you expect to occur in the U.S. as a result of this change?
A) In the short run, unemployment will increase and inflation will fall.
B) In the short run, unemployment will increase and inflation will rise.
C) In the short run, unemployment will decrease and inflation will rise.
D) In the short run, unemployment will decrease and inflation will fall.
Recession
A period of temporary economic decline during which trade and industrial activities are reduced, generally identified by a fall in GDP in two successive quarters.
Net Exports
The value of a country's total exports minus the value of its total imports, representing a component of a nation's GDP.
Short Run
A period in which at least one input is fixed, limiting the ability of a firm to adjust all of its inputs to change output.
- Examine the effects of variations in both aggregate demand and aggregate supply on economic conditions.
Verified Answer
SL
Shameka LovelessMay 15, 2024
Final Answer :
A
Explanation :
A recession in Europe leading to reduced U.S. net exports would likely decrease aggregate demand in the U.S. economy. This decrease in demand would, in the short run, lead to higher unemployment as firms reduce production and potentially lay off workers. With lower demand, there's also less pressure on prices, leading to lower inflation rates.
Learning Objectives
- Examine the effects of variations in both aggregate demand and aggregate supply on economic conditions.