1.) Economic activities tend to cluster in time because: Select one: a. of the v

Question

1.) Economic activities tend to cluster in time because:

Select one:

a. of the vertical LRAS curve.

b. of labor unions.

c. it pays to coordinate economic activities with those of others.

d. it is legally required.

2.)

Refer to the AD/AS graph 1. It shows an economy at a long run equilibrium with real growth = 3% and inflation = 4%. After the short run fluctuation, what will be the outcome in the long run? (assume the increase in AD is due to an increase in money growth)

Select one:

a. Inflation will fall back to the original expected inflation of 4% and real growth will remain at 5%

b. Inflation will increase to 7% and real growth will increase to 10%

c. The Solow growth rate will become 5% and the inflation rate will remain at 5%

d. Inflation will increase to 7% and real growth returns to the Solow rate of 3%

Explanation / Answer

1) Option C. Clustering helps in economic advantages that are called agglomeration economies when firms organize themselves in cluster in centralised location

2) Option D because SRAS shifts to the left so much so that all the increase is absorbed by inflation, leaving Solow growth rate unchnaged at 3%

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