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Comparing Economic Shock Propagation
Two towns, Crestwood and Maple Valley, each have a single large factory that is the primary employer. Both factories unexpectedly shut down, resulting in a significant number of layoffs. Crestwood's local economy consists mainly of small, locally-owned businesses (restaurants, shops, services) where owners and employees live in the community. Maple Valley's local economy is dominated by large, national chain stores whose profits are sent to a corporate headquarters in another state and whose supply chains are national. In which town is the initial income shock from the factory closure likely to cause a more severe secondary economic downturn for the other businesses within the town? Justify your answer by explaining the process through which the initial shock spreads.
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Comparing Economic Shock Propagation