Question 9

As soon as any nation has experienced two consecutive quarterly declines of its gross domestic product, that nation will be in a (n) :

Economic recession

Explanation:

A recession occurs when an economy faces a negative real GDP for two successive quarters or more. In a business cycle, the recession would be a period that occurs between the peak and the trough.

A recession can be caused by many factors:

1. High interest rates

2. High unemployment

3. Low consumer and business confidence

It is possible to say that all factors are interconnected. For example, when interest rates are higher, it means that people will spend less on borrowed money, as now borrowing money is more costly. This in turn means that demand for products are lower, leading to lower business confidence. When sales are low, businesses may attempt to cut back on costs to ensure profits. This can take the form of laying off workers. Hence, unemployment in the economy will increase. Consumer confidence will also plummet.

Some consequences may include:

1. Fall in inflation: As aggregate demand in the economy falls, price levels will fall. Thus, reducing inflation.

2. Government deficit: the government may have to start spending more on expenditures such as unemployment benefits. On the other hand, income generated from corporate/income taxes will fall. Fall in income and rise in expenditure causes a deficit.

3. Environmental pollution is less: Due to less movement in the economy, polluting factors such as factory smoke, vehicle congestion and waste send to landfill will be much lesser. This would prove to be beneficial for the environment.