What is the economic term for a period of contraction in the economy?

• A. Inflation
• B. Depression
• C. Recession
• D. Stagnation

Answer: (C)

The correct answer is indeed the term "Recession." A recession is defined as a significant decline in economic activity that lasts for a prolonged period, typically identified by two consecutive quarters of negative growth in real GDP. During a recession, there is generally a drop in consumer demand, production, and employment levels, leading to reduced business revenues and spending. This economic downturn often results in increased unemployment rates and can impact various sectors, leading to a contraction of the economy overall.

In the context of the other terms, inflation refers to the rate at which the general level of prices for goods and services rises, eroding purchasing power. Depression is a more severe and prolonged downturn than a recession but is characterized by much larger economic declines, high unemployment, and significant drops in consumer spending. Stagnation refers to a period of slow economic growth or no growth, which can occur alongside high unemployment but does not necessarily include the contraction seen in a recession.