Question

5. Under what scenario would the government officially confirm that the economy is in a "recession?" 6. What are the four phases of an economy's business cycle? 7. What should fiscal policymakers do to slow the economy down? 8. What are the four types of limited resources as described in Chapter 1?

Answer 1

Answer 1 - Recession is the phase of the economy in which the growth of GDP is negative. Hence if the growth rate of GDP remains negative for more than 2 quaters , the rate of inflation falls below the target range of 2-3 % , and the unemployment rises above the targetted rate , the government can officially confirm that the economy is under recession phase.

Answer 2 - Four phases of economies business cycle are -

1 - Expansion - The growth rate is positive and economy is growing

2 - Peak - The economy achieves the maximum growth with full employment of resources

3 - Contraction - The growth rate begins to slow down. Inflation and rate of employment and output fall.

4 - Trough - The phase of minimum point in the business cycle where growth is at the minimum point and unemployment at highest