Question

Which of the following scenarios indicates that an economy which might be in a recession? select the correct answer below:

a. unemployment is rising
b. employment is rising
c. real gdp is rising
d. there is no cyclical unemployment

Answer 1

An indication of a recession is when unemployment is rising, which would suggest a need for expansionary fiscal policy to increase aggregate demand and reduce cyclical unemployment through mechanisms such as lowering taxes or increasing government spending.

Step-by-step explanation:

The scenario indicating that an economy might be in a recession is when unemployment is rising. Recession is identified by a significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale retail sales. An economy in recession would typically require an expansionary fiscal policy. This policy is implemented in the hope of increasing aggregate demand by decreasing taxes or increasing government expenditures.

In a recession, cyclical unemployment rises due to the reduced demand for goods and services, which leads to a decrease in production. Firms lay off workers, increasing unemployment. Conversely, during economic expansions, cyclical unemployment tends to decrease as the demand for goods and services grows, so firms hire more workers to increase production.