Question

Choose the answer that best describes the correlation between phases of the business cycle and the unemployment rate. A. The business cycle has no effect on the unemployment rates. B. Unemployment rates increase during a contraction and decrease during an expansion. C. Unemployment rates decrease during a contraction and increase during an expansion. D. Unemployment rates decrease whenever the business cycle shifts to a new phase.

Answer 1

The correct answer is B) Unemployment rates increase during a contraction and decrease during an expansion.

The statement that best describes the correlation between phases of the business cycle and the unemployment rate is this: "Unemployment rates increase during a contraction and decrease during an expansion."

Let's have in mind that when we are referring to the economic term "business cycle" we are talking about the different phases or cycles that encompass the economy of a country. During this cycle, the economy passes through a series of ups and downs in economic activity.

These cycles have the following stages. An expansion, peak, contraction, and trough. When the economy is in expansion, companies offer many jobs, they are selling well, they are generating constant income, so the creation of jobs makes unemployment decrease. However, during a contraction of the economy, companies lay off employees, and unemployment rates increase.