When an economy is in a recession,
A) strong demand for investment funds will push interest rates upward.
B) strong demand for resources will push the prices of resources upward.
C) the real interest rate will tend to rise.
D) the unemployment rate will rise above its natural rate.

Question

Quizplus · Accepted Answer

During a recession, there is a decrease in overall economic activity, leading to a decrease in demand for goods and services. This leads to a decrease in demand for labor, which in turn leads to an increase in unemployment. Therefore, option D is correct. Options A and C are incorrect because during a recession, there is typically a decrease in demand for investment funds and a decrease in the real interest rate. Option B is incorrect because during a recession, there is typically a decrease in demand for resources, leading to a decrease in resource prices.

When an Economy Is in a Recession