1. Economies in Recession Extract F (lines 1–2) states that ‘the economies of most
major OECD countries were in recession in the third quarter of 2008’.

Explain two factors that may cause an economy to go into recession.

[10 marks]
Write homework on lined paper. You must use the following structure to answer the question.

Structure:

Two definitions – define a recession and AD

2 PEEL Paragraphs with application to the extract and a diagram.
P – point
E – explanation
E – evidence
L – link back to the question

Sample paragraph

One factor which may cause an economy to go into recession is a ‘continued weakness in the housing
market,’ stated in extract F. This could mean that house prices are falling, which means those who own
houses might experience a negative wealth effect. This could decrease their consumer confidence,
which could decrease consumption and AD as C is a component of AD. Therefore if AD shifts inwards
as per the diagram below, real output falls from y1 to y2, therefore GDP falls and economic growth falls.
If this falls in two consecutive quarters then it can result in a recession.

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