Question

A country recently experienced a drop in consumer purchases and a rise in business inventories of durable goods. Wages grew slowly and unemployment increased. Business investment in plant and equipment dropped sharply and profits fell. Both interest rates and stock prices fell. Which of the following statements best represents the country’s current economy?

Answer 1

Answer:

A recession

Explanation:

A recession is a period of slow or negative economic growth that lasts several months. In a recession, there is a general decline in productivity in the economy. In other words, the GDP growth rate drops too low or turns negatives.

Due to low productivity, unemployment rate rises as the industries and services sectors lay-off workers instead of creating job opportunities.  There is reduced consumer confidence leading to low retail sales and a decline in prices.

Negative growth implies reduced levels of investment in the economy. Businesses experience low profits, and hence, stock prices fall.  Economist considers recessions a part of a normal business cycle.