Question

3. Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year. What effect might this announcement have on the economy? A) Employers will trim payrolls in an effort to cut costs in the face of decreased demand for their products. B) Businesses will invest heavily in plant and equipment. C) Businesses will add shifts to prepare for the upcoming recovery. D) The Federal Reserve will increase interest rates to fight the recession.

Answer 1

Answer:

The correct answer is option A.

Explanation:

Recession in an economy means that the economic activities are reduced. During recession aggregate demand gets reduced.

When the recession is announced the firms will realize that the demand for their products must have been reduced. To reduce the cost of production the firms will reduce the wages paid to the workers.

This will further reduce the income and the demand for products.