Question

1) Explain Recessions and recoveries in Business Cycles experienced by the economy.

2) Explain what Gross Domestic Product measures.

3) Explain what inflation represents.

4) What is the criteria for classifying if a person is counted as unemployed when calculating the unemployment rate?

5) Explain Frictional, Structural and Cyclical unemployment.

Answer 1

1) In economics the business cycle includes the four phases: expansion, peak, recession, and trough. The recession refers to a contraction phase in business cycle when there is a general decline in activities in an economy. The factors causing the recession includes a widespread decline in spending (i.e. the adverse supply or demand shock) such as a rise in rate of interest or periods of high deflation and chronically low rates of interest or rapid rise in prices of items or a fall in the real wages or loss of the consumer confidence, respectively. In modern economies the recessions are highly frequent. The governments often respond to recessions with an adoption of the expansionary macroeconomic policies, such as increasing government expenditure, a rise in the money supply or a decline in the taxation. The recovery phase refers to an expansion phase i.e. depression to prosperity (lower turning point) which depicts a rise in economic activities. It causes a rise in output, decline in unemployment and later inflation begins to rise

2) GDP can be determined with three measures discussed as below:

1. The expenditures approach: GDP will be computed as:

GDP = [Investment + consumption + government expenditure + exports - imports]

2. Income Approach: As per income approach GDP would be computed as the sums the factor incomes to the production factors.

3. Production Approach: This method computes GDP as the difference between value of output minus the value of goods and services used in output production during a specified period.

As per policy we have to answer first question I have answered more than one