Question

2. What would happen to the following variables if the economy entered a recession phase?
a. Income
b. Investment
c. Demand for durable goods
d. Unemployment rate

3. Briefly, explain the three types on unemployment, give example of each one and show which type of unemployment is part of natural rate of unemployment and which one is not.

Answer 1

Avg. Per capita income decrease as gdp Decrease and unemployment increases, because production stablize or decrease during recession .

Investment decrease as economy is not enough profitable for investor as gdp is not growing well or unemployment or income of household decrease saving of household to invest.

Demand for durable good decrease as demand decrease in the economy and producer want to sell more but not able as demand not enough in the economy.

Unemployment rate increases as production of good and service decrease the demand of workforceand as a result bjob cut is a natural phenomenon.

Three type of unemployment :

1) cyclical .. . . Due to up and down vof trade cycle . There may bebsome job cut during slowdown

2) frictional.... This type of unemployment being in the process of moving from one job to another. Like one company to another company job finding process

. .

3) structural. . Due to structural change In the economy like .. . Deindustriliasation or technology advancemet in the economy , taxation reform, labor reform ike direct or indirect tax reform.durimg privatisation of government PSU their may be some job cut of existing employees.

Natural unemployment including structural and frictional type unemployment only but not the Cyclical unemployment.