What happens during a recession?

Question

BlackTom AI · Accepted Answer

When considering what happens during a recession, we should evaluate the typical macroeconomic patterns that define this period.
Option a: 'Production is increasing' — A recession is characterized by a slowdown in economic activity, so overall production tends to fall or grow very slowly, not increase. This makes this choice inconsistent with recession dynamics.
Option b: 'Real GDP is declining' — This is the hallmark of a recession. Real GDP, which is GDP adjusted for inflation, falls as output contracts, reflecting the shrinking economy. This aligns with standard definitions of a recession.
Option c: 'Real GDP is increasing' — An increase in real GDP indicates expansion, not a recession. Therefore, this choice contradicts the typical experience during a recession.
Option d: 'Unemployment is decreasing' — Recessions usually accompany rising unemployment as firms lay off workers in response to reduced demand. A decreasing unemployment rate would signal improvement, not a recession.
In summary, the statement that best captures the recession experience is that real GDP is declining, while the other options describe expansionary or counterintuitive scenarios for a recession period.

MUF0062 Economics Unit 2 - Semester 2, 2025 The Business Cycle - Video and Quick Quiz (7 - 10 minutes)

What happens during a recession?

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