With reference to economic recessions, consider the following statements:
1. Recession refers to a period of sustained economic contraction, typically identified by a decline in GDP for two consecutive quarters.
2. Rising unemployment and reduced consumer spending are characteristic features of a recession.
3. Recession does not affect inflation rates, as both are independent and function separately within the economy.

Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c ) 3 only
(d) 1, 2 and 3

Question

With reference to economic recessions, consider the following statements:
1. Recession refers to a period of sustained economic contraction, typically identified by a decline in GDP for two consecutive quarters.
2. Rising unemployment and reduced consumer spending are characteristic features of a recession.
3. Recession does not affect inflation rates, as both are independent and function separately within the economy.

Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c ) 3 only
(d) 1, 2 and 3

ONLiNE UPSC · Accepted Answer

Statement 1 is correct: A recession is generally defined as a period of economic decline lasting at least two consecutive quarters, during which a country's GDP contracts. It is often seen as a common technical definition of a recession.

Statement 2 is correct: During a recession, businesses experience lower demand for goods and services, which leads to reduced production and often results in layoffs, leading to rising unemployment. Additionally, with higher uncertainty about the economy, consumers tend to cut back on spending, which further exacerbates the economic slowdown.

Statement 3 is not correct: During a recession, the overall demand for goods and services in the economy tends to decline. As a result, prices may rise at a slower pace or even fall, leading to lower inflation or deflation. Businesses, due to weak demand, are less likely to increase prices, which reduces inflationary pressure in the economy.

Economic Recessions

Characteristics and Impact of Recessions

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M Question 1	⏱ 0
With reference to economic recessions, consider the following statements: 1. Recession refers to a period of sustained economic contraction, typically identified by a decline in GDP for two consecutive quarters. 2. Rising unemployment and reduced consumer spending are characteristic features of a recession. 3. Recession does not affect inflation rates, as both are independent and function separately within the economy. Which of the statements given above is/are correct? (a) 1 and 2 only (b) 2 and 3 only (c ) 3 only (d) 1, 2 and 3