Previous Year Question
Match List I with List II and select the correct answer using the code given below the lists:
List I | List II |
A. Boom | 1. Business activities are at a high level with increasing income, output and employment at the macro level |
B. Recession | 2. Gradual fall in income, output and employment with business activity in a low gear |
C. Depression | 3. Unprecedented level of underemployment and unemployment, and a drastic fall in income, output and employment |
D. Recovery | 4. Steady rise in the general level of prices, income, output and employment |
Codes:
A–1, B–2, C–3, D–4
A–1, B–2, C–4, D–3
A–2, B–1, C–4, D–3
A–2, B–1, C–3, D–4
Correct Answer: A
Detailed Solution
A business cycle represents recurring expansion and contraction in aggregate economic activity, particularly output, income, employment, investment and demand.
Boom—1: A boom is the high phase of economic expansion. Aggregate demand, production, income, employment, profits and investment remain at high levels. High capacity utilisation may also generate upward pressure on prices.
Recession—2: A recession involves a broad decline in economic activity. Weak demand and sales cause output, income, employment and private investment to fall. Firms may reduce inventories and postpone fresh investment.
Depression—3: A depression is a much deeper and more prolonged contraction than an ordinary recession. It is associated with a drastic fall in output and income, very high unemployment, low capacity utilisation and severely depressed investment.
Recovery—4: Recovery begins after economic activity reaches its lower turning point. Demand, production, employment, income and investment start rising, and the economy moves from contraction towards expansion.