CA Foundation · Business Economics · Business Cycles
During the expansion phase of a business cycle, which of the following typically occurs in the economy?
During the expansion phase, employment rises, consumer and business incomes increase, and there is higher demand for goods and services across the economy. This growth phase is characterized by rising production, investment, and consumption as economic activity accelerates.
- AConsumer spending decreases and business investment falls sharply
- BEmployment levels rise, incomes grow, and demand for goods and services increasesCorrect
- CInterest rates remain constant and inflation becomes zero
- DBank credit becomes unavailable and factories operate at minimal capacity
Explanation
During expansion, the economy grows with rising employment, incomes, and consumer demand. This is the definition of the expansion or boom phase. The other options describe contraction or recession phases when economic activity declines. Option 2 correctly identifies the characteristics of an expanding economy.
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