Which of these is the most reasonable inference to make given that the economy is currently in recession?

Question

BlackTom AI · Accepted Answer

When considering what a recession implies for the economy, it’s helpful to connect general macroeconomic patterns to each option.
Option 1: 'The inflation rate is likely decreasing' — In a recession, overall demand tends to weaken, which often leads to slower price increases or even deflationary pressures. While not guaranteed, a falling or stabilizing inflation rate is a common inference, making this a plausible conclusion.
Option 2: 'Consumers are likely purchasing more durable goods than before' — Recessions typically dampen consumer confidence and spending, especially on durable goods which are sensitive to economic cycles. It would be unusual to see increased durable-goods purchases during a downturn, so this is less likely.
Option 3: 'The unemployment rate is likely decreasing' — A classic feature of recessions is rising unemployment as firms cut production and labor demand. A decreasing unemployment rate would contradict typical recession dynamics, making this option unlikely.
Option 4: 'Price level is likely to be constant' — Price levels can be sticky or vary during a recession, but assuming constancy ignores the tendency for inflation to slow or for prices to adjust with weaker demand. Saying the price level is constant overlooks potential deflationary or disinflationary pressures and is not the most reasonable inference.
Overall, the options contrast a realistic recession pattern (weaker demand, higher unemployment, possible inflation slowdown) with less plausible claims (increased durable-goods purchases, constant price level). The most consistent inference with recessionary dynamics is a decline or slower growth in inflation, supporting option 1 as the reasonable inference.

ECON 2002.01 AU2025 (21333) Midterm Exam 2- Requires Respondus LockDown Browser

Which of these is the most reasonable inference to make given that the economy is currently in recession?

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ECON 2002.01 AU2025 (21333) Midterm Exam 2- Requires Respondus LockDown Browser

Which of these is the most reasonable inference to make given that the economy is currently in recession?

View Explanation

Log in for full answers

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During a(n) many firms experience reduced profits, which reduces and investment spending.