Chapter 13.4, Problem 3R

To determine

To state: The effects of economic expansion and contraction on an economy.

Explanation of Solution

When the economic activities begin to increase after trough, this period is called expansion. This period shows an increase in all the economic activities. This is also termed as period if recovery as the economic activities starts recovering after seeing a major downfall.

Contraction is that part of business cycle where the economic activities slow down. The contraction period is analyzed by economists for forecasting any future recession. If the contraction period lasts longer, it can cause depression.

Economics Concept Introduction

Introduction:

Business cycle- The irregular changes in the level of total output that is measured by real GDP is the business cycle. The business cycle is considered important as it can have a significance influence on the consumer demand. The phases of expansion and contraction happen during the business cycle.