Answer to Question #80470 in Economics of Enterprise for bryan

Question

During a recession, cyclical unemployment will ________ and cyclical inflation will ________.
a) decrease; decrease
b) decrease; increase
c) increase; increase
d) increase; decrease

Answer 1

During a recession, cyclical unemployment will increase and cyclical inflation will decreases.
Justification
Inflation is considered as the rise in the prices of commodities and services whereas recession is regarded as the decline in the overall output of an economy. Cyclical unemployment tends to increase during a recession because most of the companies are not willing to recruit. Unemployment and inflation are inversely related not unless an economy is experiencing a stagflation. In effect, cyclical inflation will decrease as cyclical unemployment increases (Mankiw, 2017).