Question : A recession is characterized by:
Option 1: High inflation and high unemployment
Option 2: Low inflation and high unemployment
Option 3: High inflation and low unemployment
Option 4: Low inflation and low unemployment
Correct Answer:
Low inflation and high unemployment
Solution : The correct answer is (b) Low inflation and high unemployment.
A recession is characterized by a period of significant economic decline and contraction. During a recession, there is a decline in economic activity, resulting in a decrease in the production of goods and services. It is generally accompanied by various negative economic indicators, and one of the primary characteristics is high unemployment.
Regarding inflation, recessions are typically associated with low inflation or even deflation. As economic activity slows down, demand for goods and services weakens, leading to decreased pressure on prices. In some cases, recessions may even be accompanied by falling prices and negative inflation rates.
It's important to note that while low inflation and high unemployment are typical characteristics of a recession, other factors such as declines in real GDP, reduced consumer spending, and business contraction also contribute to defining a recessionary period.
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