Which of the following variables typically exhibit co-movement during an economic expansion?

• A. Exchange rates and consumer surplus
• B. Interest rates and government spending
• C. Employment and real GDP
• D. Unemployment rate and inflation rate

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of economic expansion, which is a phase in the business cycle characterized by increasing economic activity, rising output, and improving labor market conditions.
2. Step 2: Identify variables that typically move together (co-move) during an economic expansion. Co-movement means that as one variable increases, the other tends to increase as well, or vice versa.
3. Step 3: Analyze each pair of variables: Exchange rates and consumer surplus do not necessarily move together consistently during expansions; Interest rates and government spending may not co-move predictably as government spending can be influenced by policy rather than economic cycles.
4. Step 4: Consider Employment and real GDP, which are closely linked because as real GDP (total output) increases during expansion, firms hire more workers, so employment tends to rise alongside real GDP.
5. Step 5: Examine Unemployment rate and inflation rate, which can have an inverse relationship (Phillips curve), so they do not typically co-move in the same direction during expansions.