Table 3-39 Assume That Japan and Korea Can Switch Between Producing Cars

question 189

Multiple Choice

Table 3-39
Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate.
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-Refer to Table 3-39. Korea should specialize in the production of

• A)cars and import airplanes.
• B)airplanes and import cars.
• C)both goods and import neither good.
• D)neither good and import both goods.

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Definitions:

Recessionary Gap

The difference between the actual output of an economy and its potential output, occurring when the economy is underperforming.

Expansionary Gap

A situation where the actual output in an economy exceeds the potential output, often leading to inflation.

Cost-Push Inflation

Cost-push inflation is caused by an increase in the prices of production inputs like labour and raw materials, leading to decreased supply and increased cost of finished goods.

Potential Output

This refers to the maximum output an economy can produce without leading to inflation, assuming all resources are fully utilized.