The US economy has recently experienced one of the worst recessions after the Great Depression of the 1930s; that is why most people called itthe Great Recession(Dec 2007-June 2009). The effects of this recession are still felt all across the country: Currently the unemployment rate is3.9%and about 700,000 people have not worked for a whole year. In addition, in 2009, real GDP dropped2.9%andthe inflation rate was negative(there wasdeflation!). Also, inOctober 2009the unemployment rate reached10.2%. Moreover, as a result of the recession, the unemployment rate was greater than4%for more than 10 years.

Note: Real GDP is a measure of total production in the economy (in a year); andwhen the unemployment rate is 4% (that is, when we have "full employment"), the economy is doing very well.

Explainwhy a significant slowdown in the economy (a drop in real GDP, a recession) causes...

a)an increase in unemployment(5 POINTS), and

b)a fall in prices (deflation)(5 POINTS).