ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Inflation decreases during recessions and increases during expansions (recoveries).

Detailed explanation-2: -An economic expansion is associated with: increase in production/output • decrease in unemployment • increase in wages • increase in consumer spending. As the economy expands, businesses generally see an increase in sales or demand for their products.

Detailed explanation-3: -Expansion is the phase of the business cycle where real gross domestic product (GDP) grows for two or more consecutive quarters, moving from a trough to a peak. Expansion is typically accompanied by a rise in employment, consumer confidence, and equity markets and is also referred to as an economic recovery.

Detailed explanation-4: -The inflation rate responds to each phase of the business cycle. That’s the natural rise and fall of economic growth that occurs over time. The cycle corresponds to the highs and lows of a nation’s gross domestic product (GDP), which measures all goods and services produced in the country.

Detailed explanation-5: -Over time, the growth in GDP causes inflation-inflation, if left unchecked, runs the risk of morphing into hyperinflation. Most economists today agree that a small amount of inflation, about 1% to 2% a year, is more beneficial than detrimental to the economy.