ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Short run fluctuations in economic activity happen only in developing countreis.
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During economic contractions, most firms experience rising sales.
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Recessions come at regular intervals and are easy to predict.
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When real GDP falls, the rate of unemployment rises.
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Detailed explanation-1: -As output falls, unemployment rises: When real GDP declines, the rate of unemployment rises because when firms produce fewer goods and services, they lay off workers.
Detailed explanation-2: -The long arm of Okun’s law Proposed by economist Arthur Okun in 1962, it basically states that if GDP grows rapidly the unemployment rate declines, if growth is very low or neg-ative the unemployment rate rises, and if growth equals potential the unemploy-ment rate remains unchanged.
Detailed explanation-3: -d) When real GDP falls, the rate of unemployment generally rises.
Detailed explanation-4: -In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well. When real GDP is growing strongly, employment is likely to be increasing as companies hire more workers for their factories and people have more money in their pockets.
Detailed explanation-5: -For every 2.0% change in the growth rate of real GDP, the unemployment rate moves about 1.0% in the opposite direction. This tendency for output to fluctuate more strongly than unemployment is known as Okun’s Law.