Explanation:

When the overall economic activity of a country is decreasing, it is said to be in a period of contraction. This means that the country's economy is experiencing a downturn or a recession, where the level of economic output, employment, and income is declining.

Causes of Economic Contraction:

There are various reasons why the economy can experience a contraction. Some of the common causes are:

- Decrease in consumer demand
- Tightening of credit by financial institutions
- Rise in unemployment
- Decrease in government spending
- Increase in taxes
- Decrease in investment

Effects of Economic Contraction:

The effects of economic contraction can be far-reaching and long-lasting. Some of the effects include:

- Increase in unemployment
- Decrease in consumer spending
- Decrease in business profits
- Increase in business bankruptcies
- Decrease in government revenue
- Increase in government debt

Measures to Combat Economic Contraction:

Governments and central banks can take various measures to combat economic contraction. Some of the measures include:

- Expansionary monetary policy: This involves lowering interest rates and increasing the money supply to stimulate economic activity.
- Expansionary fiscal policy: This involves increasing government spending and lowering taxes to boost economic activity.
- Providing stimulus packages to businesses and individuals
- Encouraging investment in key sectors of the economy
- Encouraging international trade to boost exports and increase foreign investment

Conclusion:

In conclusion, economic contraction is a period of decline in the overall economic activity of a country. It can have far-reaching effects on the economy and its citizens. Governments and central banks can take measures to combat economic contraction and stimulate economic activity.

When economic activity is declining it is called as contraction because it is the phase where economy is falling after expansion phase there is no logic behind this name these are the only names given by economist