IGCSE Economics Paper-2: Specimen Questions with Answers 35 - 35 of 100

Get top class preparation for Bank-PO right from your home: get questions, notes, tests, video lectures and more- for all subjects of Bank-PO.

Passage

In the recession that began in late 2007 in the United States, the first main element of GDP that faltered was the part of investment called residential structures. When housing prices started falling in 2006, new home construction slowed down. In 2008, this sector had shrunk by more than 40 % from where it had been just a few years earlier.

Question 35 (4 of 5 Based on Passage)

Edit

Write in Short

Short Answer▾

How recession does affect GDP?

Explanation

Recession is defined as a decline in economic activity spread across the economy that lasts for more than few months for a longer period.

Recession Indicates Indicate the Economic Results of A

  • a loss of jobs
  • a decline in real income
  • a slowdown in industrial production and manufacturing
  • Slump in consumer spending.
    • A standard definition of recession is “two consecutive quarters of negative GDP growth.” Business that was prospering earlier, at the time of recession is exposed to risk, reduction in the size of scale of production. Due to recession there will be a drop in the levels of investment and spending and will put a pressure on prices leading to slump in the aggregate. GDP will decline and rate of unemployment will increase as companies will start laying-off workers to cut the cost.
    • At the microeconomic level, firms will experience a decline in the margin of profit during the phase of recession. Firm look towards cutting cost whenever there is a decline in the sales or investment of the firm. A firm during recession may stop producing low-margin products or reduce the compensation of employees. It may also try to obtain temporary interest relief through re-negotiation with creditors.

Developed by: