In each of the questions an inference is given in bold which is then followed by three paragraphs. You have to find the paragraphs(s) from where it is inferred. Choose the option with the best possible outcome as your choice.
GDP fluctuates because of the business cycle.
The downturn of a business cycle is called a recession, which is defined as a period in which real GDP declines for at least 2 consecutive quarter years. The recession begins at a peak and ends at a trough. After the downward phase reaches bottom and economy gradually enters the expansionary phase.
As interest rates rise, companies and consumers cut back their spending , and the economy slows down. Slowing demand leads companies to lay off employees, which further affects consumer confidence and demand. To breack this vicious circle, the central bank eases monetary policy to stimulate economic growth and employment until the economy is booming once again. Rinse and repeat.
High levels of investment as a share of GDP might be superb for creating extra capacity to produce but at the expense of consumer goods and services for the current generation. This imbalance is one of the reasons why GDP data may give a distorted picture of living standards in a country.

Options

A. Only (I)
B. Both (II) and (III)
C. Both (I) and (II)
D. Only (II)

Answer

D

Explanation

Only statement (II) is correct as the given inference is about the reasons for fluctuation in GDP and is not indicating about the living standard which was the case in statement (III). Statement (II) on the other hand is talking about the "lay off" which is indirectly connected to the GDP fluctuation. Important thing here is the uncerstanding of the concept.