1) A financial crisis can lead to a recession because it can cause:

A. wealth and income to fall, reducing spending and ultimately reducing employment.

B. investment and income to fall, lowering saving and increasing the money supply.

C. wealth and saving to fall, lowering investment and increasing the money supply.

D. investment and saving to fall, increasing spending and ultimately reducing employment.

2) A major new invention can lead to an expansion if there are:

A. increases in saving, the money supply, and employment:

B. decreases in wealth and increases in consumption and unemployment.

C. increases in investment, consumption, output, and employment.

D. decreases in saving and increases in consumption and unemployment.

Answer 1:

The correct answer is A)

Recessions are mostly caused by a lack of circulation of money in the economy.

Explanation:

In economic parlance, this shortage is captured as:

Shortage in government spending thus translating to low circulation of money as businesses that depend on the government experience low transactions. Please note that in many cases, the Government is the largest spender.

Shortage of Investment leading to low employment which ultimately reduces disposable income.

Answer 2

The correct answer here is C

An increase in investment goes hand in hand with an increase in consumption, output, and employment.

If for instance, the government makes capital available through the banks a very low-interest rate, this will encourage businesses to leverage off the cheap capital to expand, acquire new technologies, and employ more hands to become more competitive and more dominant in the market.

So a new invention will translate to expansion if

Cheers!

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