Question

27. It sometimes happens that during a severe recession the unemployment rate decreases a bit long before the economy recovers. Why does that happen?

Answer 1

Ans.

When economy is in severe recession firms start lay off workers and Aggregate demand of the economy fall.

But tge government plays the intense role at the time of recession. It increase its expenditure like providing subsidies to the firm so that they have incentives to produce, so that unemployment decreases

and at the time of recession firm will get labour at very cheap wages, so they employ labour and trained them at very low wages and can use them when the recovery stage start.