As the economy falls from the peak to the trough of the business cycle:
A) Inflationary pressures should increase as unemployment rises.
B) Cyclical unemployment should increase and real GDP should decline.
C) Frictional unemployment should fall because people find jobs more quickly.
D) Structural unemployment will be eliminated.

Question

Quizplus · Accepted Answer

During the transition from the peak to the trough of the business cycle, the economy typically experiences a slowdown in economic activity. This slowdown leads to a decrease in demand for goods and services, which in turn causes businesses to reduce their workforce or halt hiring. As a result, cyclical unemployment increases because the unemployment is directly related to the cyclical trends in the economy. Additionally, real GDP declines because the overall economic output decreases due to reduced consumer spending and business investment. Choices A, C, and D do not accurately describe the typical economic dynamics during this phase of the business cycle.

As the Economy Falls from the Peak to the Trough