During a severe recession, we would expect output to fall the most in which of the following sectors?

• A. Durable goods manufacturing
• B. Utilities
• C. Government services
• D. Agriculture

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the nature of the sectors listed: Durable goods manufacturing, Utilities, Government services, and Agriculture. Durable goods manufacturing involves producing items that last for a long time, such as cars and appliances. Utilities provide essential services like electricity and water. Government services include public administration and social services. Agriculture involves farming and food production.
2. Step 2: Recall the concept of cyclical sensitivity in microeconomics. Sectors that produce non-essential or luxury goods tend to be more sensitive to economic downturns because consumers and businesses delay or reduce spending on these items during recessions.
3. Step 3: Analyze each sector's sensitivity to economic cycles. Durable goods manufacturing is highly cyclical because consumers postpone buying expensive, long-lasting goods during recessions. Utilities and government services are less cyclical because they provide essential services that people continue to use regardless of economic conditions. Agriculture can be somewhat cyclical but often less so than durable goods.
4. Step 4: Conclude that during a severe recession, output falls the most in sectors that are highly sensitive to economic cycles, which is typically durable goods manufacturing.
5. Step 5: Summarize that the sector with the largest output decline during a recession is durable goods manufacturing due to its high sensitivity to changes in consumer and business spending.