What typically happens in an economy during a recession?

What typically happens in an economy during a recession?

• A. Consumer spending increases significantly.
• B. Unemployment rates fall below average levels.
• C. Businesses may face declining revenues and profits.
• D. Investment in technology tends to rise sharply.

Answer: (C)

During a recession, economic activity slows down, leading to various significant impacts on businesses and consumers. One of the key features of a recession is that businesses often experience declining revenues and profits. As consumer confidence wanes, people are likely to spend less, which directly affects sales. With reduced consumer demand, companies may struggle to maintain their previous levels of revenue, resulting in lower profits.

Additionally, businesses may respond to falling revenues in several ways, such as cutting costs, reducing payroll, or postponing investments in growth—further contributing to the recessionary cycle. This decline in business activity can have a ripple effect throughout the economy, leading to higher unemployment rates and decreased consumer spending.

In contrast, while some can argue that investment in technology may still occur during downturns, it is typically more cautious, as firms prioritize stability over growth.