What happens when an economy starts to contract?

Question

Quizplus · Accepted Answer

When an economy starts to contract, there is usually a decrease in demand for goods and services, which leads to a decrease in demand for labor. This results in a decrease in labor supply as people become unemployed or leave the labor force. Therefore, the correct answer is D. A, B, and C are incorrect because a contracting economy typically results in a decrease in labor demand, an increase in cyclical unemployment, and a decrease in wages as there is less demand for labor.

What Happens When an Economy Starts to Contract