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Economic Scarring

Economic scarring, also known as hysteresis, refers to the long-lasting negative economic effects of a recession or other economic downturn. Economic scarring can occur when workers who lose their jobs during a recession have difficulty finding new employment, leading to a permanent loss of skills and earning potential. Economic scarring can also occur when businesses that fail during a recession are not replaced, leading to a permanent loss of economic activity.

Economic scarring can have negative impacts on a country's long-term economic growth (long run aggregate supply) and can lead to increased income inequality and social and political instability.

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