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Consider the following statements:
- Recession is contraction in economic activities for at least two consecutive quarters.
- Indian economy entered recession for the first time in its history during the 1991 economic crisis.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consider the following statements: Recession is contraction in economi...
- In any economy, a recessionary phase is the counterpart of an expansionary phase. When the GDP contracts from one quarter to another, the economy is said to be in a recessionary phase.
- When a recessionary phase sustains for long enough, it is called a recession. In other words, when the GDP contracts for a long enough period, the economy is said to be in a recession.
- Recession is defined as two or more consecutive quarters of negative economic growth, which is most commonly measured using the real gross domestic product (GDP). An economic recession is broad as a downturn in the GDP of a nation for at least two successive quarters, ie, 6 months. Hence, statement 1 is correct.
- During the first quarter of 2020-21, the GDP of India declined by 23.9% and RBI predicts that India’s economy will contract by 8.6% in the second quarter (July, August, September) of the current financial year.
- While this pace of contraction is considerably slower than the 23.9% decline in the real gross domestic product (GDP) during the first quarter (April, May, June), the contraction of Q2 is crucial because it implies India that has entered a “technical recession” in the first half of 2020-21— for the first time in its history. Hence, statement 2 is not correct.
- Typically, recessions last for a few quarters. But if they continue for years, they are referred to as “depressions”. Depressions are drastic economic downturns in which real GDP falls by 10% or more. They are far more severe than recessions and their effects can be felt for years. Depressions are known to cause calamities in banking, trade, and manufacturing, as well as falling prices, extremely tight credit, low investment, rising bankruptcy, and high unemployment.
- A slowdown, on the other hand, means that the pace of the GDP growth has decreased (but positive). It means the production and earnings of these economies are not growing at the same pace as, say, last year.
Most Upvoted Answer
Consider the following statements: Recession is contraction in economi...
Explanation:
The given statements are:
1. Recession is contraction in economic activities for at least two consecutive quarters.
2. Indian economy entered recession for the first time in its history during the 1991 economic crisis.
Statement 1: Recession is contraction in economic activities for at least two consecutive quarters.
A recession is commonly defined as a period of economic decline characterized by a contraction in economic activities. It is typically identified when there is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. This means that the total output of goods and services in the economy is shrinking over a sustained period of time. Therefore, statement 1 is correct.
Statement 2: Indian economy entered recession for the first time in its history during the 1991 economic crisis.
The 1991 economic crisis in India was a significant event that led to major economic reforms. However, it is important to note that the Indian economy did not enter a recession during this period. Instead, it experienced a severe economic downturn and balance of payment crisis. The GDP growth rate declined significantly, but it did not contract for two consecutive quarters, which is the criteria for a recession. Therefore, statement 2 is incorrect.
Conclusion:
In conclusion, statement 1 is correct as it defines the concept of recession accurately. However, statement 2 is incorrect as the Indian economy did not enter a recession during the 1991 economic crisis. Therefore, the correct answer is option 'A' - 1 only.
The given statements are:
1. Recession is contraction in economic activities for at least two consecutive quarters.
2. Indian economy entered recession for the first time in its history during the 1991 economic crisis.
Statement 1: Recession is contraction in economic activities for at least two consecutive quarters.
A recession is commonly defined as a period of economic decline characterized by a contraction in economic activities. It is typically identified when there is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. This means that the total output of goods and services in the economy is shrinking over a sustained period of time. Therefore, statement 1 is correct.
Statement 2: Indian economy entered recession for the first time in its history during the 1991 economic crisis.
The 1991 economic crisis in India was a significant event that led to major economic reforms. However, it is important to note that the Indian economy did not enter a recession during this period. Instead, it experienced a severe economic downturn and balance of payment crisis. The GDP growth rate declined significantly, but it did not contract for two consecutive quarters, which is the criteria for a recession. Therefore, statement 2 is incorrect.
Conclusion:
In conclusion, statement 1 is correct as it defines the concept of recession accurately. However, statement 2 is incorrect as the Indian economy did not enter a recession during the 1991 economic crisis. Therefore, the correct answer is option 'A' - 1 only.
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Consider the following statements: Recession is contraction in economic activities for at least two consecutive quarters. Indian economy entered recession for the first time in its history during the 1991 economic crisis.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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