Which of the following statements about economic fluctuations is true?

• A. Economic fluctuations never affect unemployment rates.
• B. Economic fluctuations refer to the short-term ups and downs in overall economic activity, such as GDP.
• C. Economic fluctuations are always caused by changes in government spending.
• D. Economic fluctuations only occur in centrally planned economies.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of economic fluctuations. Economic fluctuations, also known as business cycles, refer to the short-term ups and downs in overall economic activity, such as changes in Gross Domestic Product (GDP).
2. Step 2: Analyze the first statement: 'Economic fluctuations never affect unemployment rates.' Consider that during recessions (downturns in economic activity), unemployment typically rises, and during expansions, unemployment tends to fall. Therefore, this statement is false.
3. Step 3: Analyze the second statement: 'Economic fluctuations refer to the short-term ups and downs in overall economic activity, such as GDP.' This matches the definition of economic fluctuations and is true.
4. Step 4: Analyze the third statement: 'Economic fluctuations are always caused by changes in government spending.' Economic fluctuations can be caused by various factors including changes in consumer demand, investment, external shocks, and not solely by government spending. Hence, this statement is false.
5. Step 5: Analyze the fourth statement: 'Economic fluctuations only occur in centrally planned economies.' Economic fluctuations occur in all types of economies, including market economies, so this statement is false.