Question
Consider the following statements regarding an economy facing cyclical unemployment:
Select the correct answer using the code given below:
- It may lead to inflation in the economy
- It may lead to deflation in the economy
- It can be tackled through expansionary monetary policy
- It can be tackled through expansionary fiscal policy
Select the correct answer using the code given below:
Answer: Option D
Answer: (d)
When the economy slows down or is in recession (due to reduced demand) then production in the economy decreases and employers lay off workers which cause cyclical unemployment.
It is a case of reduced demand, so it generally leads to deflation.
So, (ii) statement is true.
It can be tackled by increasing the demand in the economy. RBI can increase the demand through expansionary monetary policy i.e. reduction in repo rate. And government can also increase the demand in the economy by expansionary fiscal policy i.e. increase in government expenditure or reduction in taxes.
Through both these policies, more money reaches the people and demand in the economy increases.
So, (iii) & (iv) statements are also true.
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Answer: (d)
When the economy slows down or is in recession (due to reduced demand) then production in the economy decreases and employers lay off workers which cause cyclical unemployment.
It is a case of reduced demand, so it generally leads to deflation.
So, (ii) statement is true.
It can be tackled by increasing the demand in the economy. RBI can increase the demand through expansionary monetary policy i.e. reduction in repo rate. And government can also increase the demand in the economy by expansionary fiscal policy i.e. increase in government expenditure or reduction in taxes.
Through both these policies, more money reaches the people and demand in the economy increases.
So, (iii) & (iv) statements are also true.
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