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Chapter 6: Q2. (page 246)

Describe who gets hurt in a recession, and how.

Short Answer

Expert verified

Both the employees and firms get hurt by the recession. Employees lose their jobs and are forced to a lower standard of living while the firms undergo abnormal profits.

Step by step solution

01

Employee loss by the recession

During a recession, the unemployment rate rises high, and jobs are scarce. It diminishes the standard of living for many individuals, and the ratio of people living below the poverty line increases. Thus, the labor market sees severe downfall and losses.

02

Damage to the firms due to the recession

Talking about the firms, as the aggregate demand falls during a recession, the firms tend to reduce the labor and the output. It reduces the firms鈥� profit. Many small-scale businesses are even forced to shut down.

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Most popular questions from this chapter

Which of the following reflect comparative advantage, and which reflect macroeconomic forces?

  1. Thanks to the development of huge oil sands in the province of Alberta, Canada has become a BUSINESS CASE exporter of oil and an importer of manufactured goods.
  2. Like many consumer goods, the Apple iPad is assembled in China, although many of the components are made in other countries.
  3. Since 2002, Germany has been running huge trade surpluses, exporting much more than it imports.
  4. The United States, which had roughly balanced trade in the early 1990s, began running large trade deficits later in the decade, as the technology boom took off.

Which of these sound like inflation, which sound like deflation, and which are ambiguous?

  1. Gasoline prices are up 10%, food prices are down 20%, and the prices of most services are up 1鈥� 2%.
  2. Gas prices have doubled, food prices are up 50%, and most services seem to be up 5% or 10%.
  3. Gas prices haven鈥檛 changed, food prices are way down, and services have gotten cheaper, too.

Would the same decision be rational now, in the aftermath of the Great Recession? Explain.

Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries?
  1. Which of the following questions involve microeconomics, and which involve macroeconomics? In each case, explain your answer.
  2. Why did consumers switch to smaller cars in 2008?
  3. Why did overall consumer spending slow down in 2008?
  4. Why did the standard of living rise more rapidly in the first generation after World War II than in the second?
  5. Why have starting salaries for students with economics degrees risen sharply of late?
  6. What determines the choice between rail and road transportation?
  7. Why did laptops get much cheaper between 2000 and 2017?
  8. Why did inflation fall in the 2010s?
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