Question

Briefly explain why most people feel worse off during parts of an expansion period than they did during parts of the recession

Answer 1

Answer - In the period of expansion , the demand in the economy is rising. As a result the price levels in economy are also rising and inflationary conditions are being build up. Even if they receive the increment in income during this phase , it has no benefit because the value of money falls and they are left with lesser money. The purchasing power of money falls due to which greater money has to be spent which makes the people worse off during expansion. In recession , the purchasing power is higher hence they do not feel worse off because of cheaper goods