ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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it stays the same
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it increases
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it decreases
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it is zero
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Detailed explanation-1: -In a recession, you would usually expect a fall in the inflation rate due to lower demand and lower economic activity. The inflation rate fell in major recessions like 1929-32, 1981, 1991 and 2020..
Detailed explanation-2: -Inflation decreases during recessions and increases during expansions (recoveries). Another way to illustrate the effects of unemployed resources is with the production possibilities curve (see graph below).
Detailed explanation-3: -Do recessions bring down inflation? Yes. Since 1948, a recession knocked down the rate of inflation 100% of the time.
Detailed explanation-4: -What Happens in a Recession? Economic output, employment, and consumer spending drop in a recession. Interest rates are also likely to decline as the central bank (such as the U.S. Federal Reserve Bank) cuts rates to support the economy.
Detailed explanation-5: -Inflation occurs due to an increase in demand (demand-pull inflation) or a rise in the cost of production (cost-push inflation). Change in demand or cost in production is caused by political, economic, and social factors. As a consequence of inflation, the buying power of money falls.