Question

Suppose for the past several months, per capita output has increased, but at a slower and slower rate. Over the same period, the unemployment rate has been falling, but it appears to have leveled off and may soon rise. Where in the business cycle is the economy?

a) Expansion
b) Peak
c) Recession
d) Trough

Answer 1

The economy is in the Expansion phase of the business cycle. Per capita output has been increasing, but at a slower rate. The unemployment rate has been falling, but it may soon rise, indicating a potential peak and recession.The correct option is a.

Step-by-step explanation:

The economy in this scenario is in the Expansion phase of the business cycle.

The business cycle refers to the fluctuations in economic activity over time. It consists of four stages: Expansion, Peak, Recession, and Trough.

In this case, per capita output has been increasing, although at a slower rate. This indicates an ongoing period of economic growth. However, the slowing rate of growth suggests that the economy may be reaching its peak, which is the highest point of economic activity before a recession begins.

Additionally, the falling unemployment rate and the possibility of it leveling off and rising soon also suggest that the economy may be nearing its peak and heading towards a recession.