Which of the following best describes a period of economic expansion in the business cycle?

• A. Heightened unemployment rates
• B. Increased consumer confidence and spending
• C. Decline in overall production
• D. Decrease in investment activity

Answer: (B)

A period of economic expansion in the business cycle is characterized primarily by increased consumer confidence and spending. During such a time, individuals and businesses feel optimistic about the future of the economy, which encourages them to spend more. This increased consumer spending leads to higher demand for goods and services, which in turn stimulates production, drives business growth, and often results in rising employment rates as companies hire more workers to meet the increased demand.

In contrast to this correct answer, heightened unemployment rates typically indicate a struggling economy rather than growth. A decline in overall production is also a sign of economic contraction, not expansion; it shows that businesses are producing less due to decreased demand. Similarly, a decrease in investment activity often accompanies periods of economic downturn when businesses might hold back on capital expenditures due to uncertainty about future profitability. Therefore, the key indicator of economic expansion is indeed the growth in consumer confidence and spending.