Correct Answer: Temporary shocks can have long-lasting effects on the economy

Solution : The correct answer is (a) Temporary shocks can have long-lasting effects on the economy.

Hysteresis refers to the idea that the effects of temporary shocks to the economy can persist and have lasting impacts on its long-term performance. It challenges the notion that the economy will automatically revert to its previous equilibrium state after a temporary shock.

The concept of hysteresis highlights the importance of proactive policy measures and timely interventions to mitigate the negative long-term effects of temporary economic shocks and prevent persistent deviations from the long-term equilibrium.