All else constant, an outbreak of avian flu:Question 4Select one:a.is likely to increase GDP because it drives up health-care spending.b.is likely to decrease GDP because output is likely to fall.c.is unlikely to affect GDP.d.is likely to increase government transfer payments.
Question
All else constant, an outbreak of avian flu:Question 4Select one:a.is likely to increase GDP because it drives up health-care spending.b.is likely to decrease GDP because output is likely to fall.c.is unlikely to affect GDP.d.is likely to increase government transfer payments.
Solution
The correct answer is:
b. is likely to decrease GDP because output is likely to fall.
Here's why:
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An outbreak of avian flu would likely lead to a decrease in the labor force as people get sick and are unable to work. This would decrease the overall productivity of the economy.
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Businesses, particularly in sectors like agriculture and food services, may also be negatively impacted. This could lead to a decrease in output and, consequently, a decrease in GDP.
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While it's true that health-care spending might increase, this is unlikely to offset the overall decrease in productivity and output. Therefore, the net effect on GDP would likely be negative.
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While government transfer payments might increase to help those affected by the outbreak, this is a transfer of existing income, not the creation of new output. Therefore, it would not increase GDP.
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