While over the long run, the economy grows about 2 to 3% per year on average,...

While over the long run, the economy grows about 2 to 3% per year on average, over the shorter term, the economy goes through business cycles. Think about the growth rate of GDP, the inflation rate, and the unemployment rate over the last 4 quarters including the Covid-19 period until July. Once you’ve looked at the data, can you draw conclusions about the state of the economy? Would you describe the economy as booming, recovering, or in a recession? Why? Which curve do you think caused the change? Explain your reasoning.

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Expert Solution

As per the data about the gorwth rates, inflation rates and unemployment rates, it is observed that the level of economic activity was highest in the Unites States in the month of February, 2020. This is the time when the country was not hit by the Covid -19. After the outbreak of the pandemic, the country has faced a situation of health crisis. In this situation, the deadly virus spreads from communication and hence has led to a stopage in the economic activity. The economy has gone under a recession due to such a fall in the economic activity. Production levels have fallen because the production units have been shut down because of the fear of virus spraeding, This has caused in an increased rate of unemployment for the people who were employed earlier along with the people who entered the labor force during the pandemic. Excess demand has been onserved in the economy because of falling supply levels and that has lead to rising inflation rate. So, mainly the prime reason behind the economy going in recession is the shift in productiuon curve downwards.

Rahul Sunny answered 1 year ago

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