BuyFind

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985
BuyFind

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985

Solutions

Chapter
Section
Chapter 15, Problem 1CQQ
Textbook Problem

When the economy goes into a recession, real GDP _________ and unemployment __________.

a. rises, rises

b. rises, falls

c. falls, rises

d. falls, falls

Expert Solution
To determine

The impact of recession on real GDP and unemployment.

Answer to Problem 1CQQ

Option 'c' is correct.

Explanation of Solution

The recession is an important part of the business cycle in the economy. It is the movement of the economy from the highest peak point of economic boom towards the lowest point of economic depression. The economy produces various types of final goods and services in a financial year and the sum value of all the final goods and services produced within the political boundary in a financial year is known as the Gross Domestic Product (GDP) of an economy.

Option (c):

The recession is a movement of economy from economic boom towards the economic depression. When the economic recession takes place, the firms would reduce their output due to the lower aggregate demand in the economy. As a result of this, the firms would lay off their excess workers and the unemployment in the economy would rise substantially. Thus the reduction in the total final product of the economy leads to the reduction in the real GDP of the economy. Thus, option 'c' is correct.

Option (a):

The recession will face a period where the households will reduce their consumption and the firms face lower demands in the economy. This leads to the reduction in the output of the economy and simultaneously reduces the GDP of the economy because the GDP is the sum value of all the final goods and services produced in the economy. So, the firms will lay off workers which rises the unemployment rate in the economy. Since the option explains that the real GDP would rise in the economy, option 'a' is incorrect.

Option (b):

The recession will face a period where the households will reduce their consumption and the firms face lower demands in the economy. This leads to the reduction in the output of the economy and simultaneously reduces the GDP of the economy because the GDP is the sum value of all the final goods and services produced in the economy. So, the firms will lay off workers which rises the unemployment rate in the economy. Since the option explains that the unemployment would fall in the economy, option 'b' is incorrect.

Option (d):

The reduction in the output of the firms due to lower aggregate demand leads to the fall in the real GDP during the period of recession. But the reduction in output leads to the layoff of the workers in the firms due to lower production which increases unemployment in the economy. Thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Recession: It is the movement of the economy from its highest peak point of growth towards the lowest point of depression in the business cycle. Thus, it is a downward movement of economy from peak to depression.

GDP: It is the money value of all the final goods and services produced within the political boundary of an economy in a financial year.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 15 Solutions

Brief Principles of Macroeconomics (MindTap Course List)

Additional Business Textbook Solutions

Find more solutions based on key concepts
Why should policymakers think about incentives?

Principles of Macroeconomics (MindTap Course List)

Describe the relationship between cost of goods sold and inventory.

Intermediate Accounting: Reporting And Analysis

Discuss target market strategies

MKTG 12:STUDENT ED.-TEXT

Assume that an average firm in the office supply business has a 6% profit margin, a 40% total liabilities/asset...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What are the key provisions of SOX?

Pkg Acc Infor Systems MS VISIO CD