The impact of recession on real GDP and unemployment .
Answer to Problem 1CQQ
Option 'c' is correct.
Explanation of Solution
The recession is an important part of the business cycle in the economy. It is the movement of the economy from the highest peak point of economic boom towards the lowest point of economic depression. The economy produces various types of final goods and services in a financial year and the sum value of all the final goods and services produced within the political boundary in a financial year is known as the Gross Domestic Product (GDP) of an economy.
Option (c):
The recession is a movement of economy from economic boom towards the economic depression. When the economic recession takes place, the firms would reduce their output due to the lower aggregate demand in the economy. As a result of this, the firms would lay off their excess workers and the unemployment in the economy would rise substantially. Thus the reduction in the total final product of the economy leads to the reduction in the real GDP of the economy. Thus, option 'c' is correct.
Option (a):
The recession will face a period where the households will reduce their consumption and the firms face lower demands in the economy. This leads to the reduction in the output of the economy and simultaneously reduces the GDP of the economy because the GDP is the sum value of all the final goods and services produced in the economy. So, the firms will lay off workers which rises the unemployment rate in the economy. Since the option explains that the real GDP would rise in the economy, option 'a' is incorrect.
Option (b):
The recession will face a period where the households will reduce their consumption and the firms face lower demands in the economy. This leads to the reduction in the output of the economy and simultaneously reduces the GDP of the economy because the GDP is the sum value of all the final goods and services produced in the economy. So, the firms will lay off workers which rises the unemployment rate in the economy. Since the option explains that the unemployment would fall in the economy, option 'b' is incorrect.
Option (d):
The reduction in the output of the firms due to lower aggregate demand leads to the fall in the real GDP during the period of recession. But the reduction in output leads to the layoff of the workers in the firms due to lower production which increases unemployment in the economy. Thus, option 'd' is incorrect.
Concept introduction:
Recession: It is the movement of the economy from its highest peak point of growth towards the lowest point of depression in the business cycle. Thus, it is a downward movement of economy from peak to depression.
GDP: It is the money value of all the final goods and services produced within the political boundary of an economy in a financial year.
Want to see more full solutions like this?
Chapter 20 Solutions
Principles of Macroeconomics (MindTap Course List)
- Discuss 4 components of aggregate demand? Find the largest and smallest component.arrow_forwardassume that the economy is operating in a recessionary. explain all the steps which the bank of canada should take in order to fix this problem. 2 graph is needed along with the explanation.arrow_forwardcould you please explain with more detail about the following, 2address the problem of an economic recession caused by high inflation, governments and central banks2arrow_forward
- Chapter 14&15 Aggregate Demand and Aggregate Supply Identify factors that would cause consumption spending to increase. What effect would that have on aggregate demand? note highly requesting donot copy and paste from CHEGG.COM OR COURSEHERO. OR INTERENT THIS QUESTIONS BEEN ANSWERS ALL OVER PLACE I HAVE ANWERS FROM CHEGG TO WANT SOMETHING NEWarrow_forwardc. If aggregate demand shifts right, what is equilibrium output? d. if aggregate demand shifts left, what is equilibrium output?arrow_forward5 An economic recession means that _______. a. GDP is critically high b. Employment is increasing c. Output and employment is down d. Output is increasingarrow_forward
- What is generally true of consumers in a recession? a. The rich suffer as the poor cut back on spending Ob. Everyone cuts back on spending, but only the low income consumer segments suffer. Everyone suffers and cuts back on spending c Od Many reallocate spending and buy less-on credit cards.arrow_forwardTypically, when will the National Bureau of Economic Research (NBER) announce that the economy is in a recession? A. on the date that the recession begins B. typically, more than 10 years after the recession begins C. about six months before the recession begins D. a year or more after the recession has begunarrow_forwardIf the price level increases in the economy, A) The total spending in the economy will fall. B)The aggregate supply will fall and shift to the left. C) The total spending in the economy will rise.arrow_forward
- Macroeconomics: Assuming marginal propensity to consume is 0.5. If there is a shock to the economy that increases investment spending by 200 billion dollars what will the total Change to GDP be? (Ignore taxes and imports)arrow_forwardFor each of the following, please explain each step and show it in the graph! a. Assume an economy is at full employment, but then consumer spending rises. What will most likely happen in the short run?arrow_forwardDiscuss the 4 components of aggregate demand?arrow_forward
- Principles of Macroeconomics (MindTap Course List)EconomicsISBN:9781305971509Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics, 7th Edition (MindTap Cou...EconomicsISBN:9781285165875Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
- Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Macroeconomics (MindTap Course List)EconomicsISBN:9781285165912Author:N. Gregory MankiwPublisher:Cengage LearningEssentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning