Chapter 2, Problem 1MCQ

To determine

The question requires us to determine the economic factor which increases during the recession phase of a business cycle.

Explanation of Solution

A recession is an economic slowdown. In a recession, the market faces the following situations:

• a low production level of goods and services, 
• high unemployment 
• low demand for goods and services
• the low general price level of goods and services
• low-income level (or low level of wages in the labor market)

The labor force is the sum of employed and unemployed people in the labor market. During the recession, people lost their jobs which cause the unemployment rate to rise, but overall it is ambiguous to determine the impact of the recession on the labor force.

During the recession, economic growth, wages, and price levels will fall in the market, while unemployment will rise in the economy.

Therefore, during the recession phase of business cycle, the unemployment rate is likely to rise in the market.