ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increase
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Decrease
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Stay the same
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None of the above
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Detailed explanation-1: -If GDP is falling, then the economy is shrinking-bad news for businesses and workers. If GDP falls for two quarters in a row, that is known as a recession, which can mean pay freezes and lost jobs.
Detailed explanation-2: -An increase in inflation means that prices have risen. With an increase in inflation, there is a decline in the purchasing power of money, which reduces consumption and therefore GDP decreases.
Detailed explanation-3: -GDP declines, and unemployment rates rise because companies lay off workers to reduce costs. At the microeconomic level, firms experience declining margins during a recession. When revenue-whether from sales or investment-declines, firms look to cut their least efficient activities.
Detailed explanation-4: -When the economy produces less than its potential GDP, the government responds with an expansionary fiscal policy. The use of government spending to boost aggregate demand, output, employment, and prices in the economy is known as an expansionary fiscal policy.