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Answer :
a) During an economic recession, the major macroeconomic variables such as GDP, unemployment rate, and inflation rate typically exhibit certain patterns:
1. GDP: Gross Domestic Product (GDP) is the measure of the total value of goods and services produced within a country. During a recession, GDP tends to decline. This is because businesses may reduce production, leading to lower income and consumer spending. As a result, overall economic output decreases.
2. Unemployment rate: The unemployment rate refers to the percentage of the labor force that is unemployed and actively seeking employment. In a recession, the unemployment rate tends to rise. This is because businesses may lay off workers due to decreased demand or financial difficulties. The reduction in jobs leads to higher levels of unemployment.
3. Inflation rate: Inflation is the rate at which the general level of prices for goods and services rises, reducing purchasing power. During an economic recession, inflation rate tends to decrease or remain low. This is because reduced consumer spending and weaker demand for goods and services can lead to a decrease in prices. Additionally, businesses may reduce prices to attract customers and stimulate spending.
b) Economic expansion refers to a period of increasing economic activity characterized by certain indicators:
1. GDP: During an economic expansion, GDP tends to grow. This means that the overall value of goods and services produced within a country increases. Increased production and consumption contribute to economic growth during this period.
2. Unemployment rate: In an economic expansion, the unemployment rate generally decreases. As the economy grows, businesses expand their operations, leading to job creation and lower unemployment levels. More job opportunities become available, and individuals find it easier to secure employment.
3. Inflation rate: During an economic expansion, the inflation rate may increase. As demand for goods and services rises, businesses may raise prices to reflect increased costs and higher demand. This can lead to a general increase in the price level and a decrease in purchasing power.
It is important to note that while these patterns are generally observed during economic recessions and expansions, the magnitude and duration of these changes can vary depending on various factors such as government policies, market conditions, and external shocks.
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