ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Business Cycle Effect on the Unemployment Rate Contractions and recessions Opens in new window cause the unemployment rate to increase while expansions and booms cause the unemployment rate to decrease. During a contraction firms see their sales decline and they begin to reduce production and lay off workers.

Detailed explanation-2: -Unemployment increases during business cycle recessions and decreases during business cycle expansions (recoveries).

Detailed explanation-3: -There are four stages in the economic cycle: expansion (real GDP is increasing), peak (real GDP stops increasing and begins decreasing), contraction or recession (real GDP is decreasing), and trough (real GDP stops decreasing and starts increasing).

Detailed explanation-4: -A contraction generally occurs after the business cycle peaks, but before it becomes a trough. According to most economists, when a country’s real gross domestic product (GDP)-the most-watched indicator of economic activity-has declined for two or more consecutive quarters, then a recession has occurred.