Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is one possible effect of economic stagnation on living standards?

1. Increase in living standards

2. No impact on living standards

3. Living standards may fall

4. Improved job market availability

The correct answer is: Living standards may fall

Economic stagnation refers to a prolonged period of slow or no economic growth, which can have various detrimental effects on living standards. When an economy stagnates, it often leads to high unemployment rates, reduced income for workers, and limited job opportunities. As businesses struggle or fail due to lack of demand, job security diminishes. This translates into lower levels of disposable income for households, making it difficult for individuals and families to maintain or improve their standard of living. With stagnant wages and reduced employment prospects, people may have less access to essential services such as healthcare, education, and housing, further exacerbating the decline in living standards. In contrast, an increase in living standards or no impact would generally be linked to economic growth or stability, where job creation and rising incomes are prevalent. Similarly, improved job market availability would occur in a thriving economy rather than a stagnant one. Thus, economic stagnation commonly correlates with a decline in living standards, making it the most accurate choice in this context.