Question

in the business cycle model, a recession is most likely
a a turnaround point where the real gdp stops going up.
b a turnaround point where the real gdp stops going down.
c a period during which the real gdp increases for two quarters in a row.
d a period during which the real gdp decreases for two quarters in a row.
e a period during which the real gdp remains unchanged for at least two quarters.

(chart: level of real output with time, showing business cycle phases: peak, recession, trough, recovery, growth, trend)

Explanation:

To determine the correct option for a recession in the business cycle, we recall the definition of a recession: a period of significant economic decline, typically defined as a decrease in real GDP for two consecutive quarters. Let's analyze each option:

• Option A: Describes a peak (where growth stops), not a recession. Eliminate.
• Option B: Describes a trough (where decline stops), not a recession. Eliminate.
• Option C: Describes an expansion (GDP increasing), opposite of a recession. Eliminate.
• Option D: Matches the definition of a recession (real GDP decreases for two quarters in a row).
• Option E: A period of unchanged GDP is not a recession (recession involves decline). Eliminate.

Answer:

D. a period during which the real GDP decreases for two quarters in a row.