Question

Euphrasia, a mixed open​ economy, was severely affected by a recession that almost paralyzed its service sector. The Euphrasian government announced a fiscal stimulus package of​ $15,000 billion to boost economic growth. GDP of the economy was expected to increase by 2.5 percent during the following year after the implementation of the fiscal stimulus package.​ However, it was observed that instead of​ increasing, the GDP of Euphrasia actually declined by 0.75 percent that year. Which of the​ following, if​ true, will explain this​ outcome? a. A number of public sector enterprises in Euphrasia were privatized. b. One of​ Euphrasia's neighboring​ countries, which is a closed​ economy, experienced a sudden decline in output and prices. c. The gross saving rate in the economy declined during that year. d. ​Euphrasia's population increased by 4.5 percent that year. e. Oil imports declined as countries exporting oil reduced supply.

Answer 1

Answer:

E) Oil imports declined as countries exporting oil reduced supply.

Explanation:

Oil is extremely important for industrialized nations and since Euphrasia is a mixed open economy, we can assume that it is an industrialized nation. Oil has become the most important energy source for more than 60 years and is the raw material for manufacturing plastic.

During the 1970s and early 1980s the American economy was shattered by an increase in the price of foreign oil and a decrease in its domestic production levels. The importance of oil is also why so many modern wars have been fought over oil production and reserves.