When a recession gets under way:
A) firms start to lay off workers to reduce costs.
B) consumer confidence rises because people expect the eventual recovery.
C) inflation always rises because the government prints more money.
D) inflation falls because the government reduces its budget deficit.

Question

Quizplus · Accepted Answer

One of the typical responses of firms during a recession is to reduce costs, often by laying off workers. This is because during a recession, there is generally less demand for goods and services, which means less revenue for firms. To maintain profitability, they may need to reduce their expenses by cutting down on their workforce.

B, C, and D are incorrect. While consumer confidence levels may rise and fall during a recession, this is not a guaranteed outcome. Similarly, inflation can go in either direction during a recession, depending on a variety of factors, such as how the government responds to the economic downturn. There is no direct correlation between recessions and either rising or falling inflation.

When a Recession Gets Under Way