When a community opens a large shopping mall, it often expects a boost to the local economy, and in fact a large amou...

shunhe on May 18, 2020

Hi @jingjingxiao11111@gmail.com,

Thanks for the question! Let’s take a look at the stimulus. We’re told that when a large shopping mall opens, the local economy gets a boost. But the boost isn’t the total amount of economic activity that goes on in the mall, it’s less than that.

We’re asked to explain this discrepancy, so this is a resolve the paradox type question. So now let’s anticipate: what could explain this? One possibility is that a lot of economic activity doesn’t boost the local economy because a lot of goods are imported from elsewhere or a lot of shoppers come from out of town. This is a pretty good anticipation, though not the actual answer in this case.

Let’s take a look at the answer, (D), which tells us that most of the money would’ve been spent elsewhere in the same community had the mall not been built. This explains the paradox. Let’s say that without the mall, $90 would’ve been spent overall in a bunch of stores all around the town. But now, the mall is built. Instead of $90 all around, $100 is spent at the mall. But the mall doesn’t add $100 to the economy, it adds $10, since that $90 was going to be spent either way. All the mall did was centralize that spending.

Hope this helps! Feel free to ask any other questions that you might have.