What are business cycles characterized by?

Business cycles are characterized by consecutive phases of expansion and contraction in the economy. This means that an economy will typically go through periods of growth, where there is an increase in economic activity, followed by periods of decline, where economic activity slows down. This cyclical nature reflects the fluctuations in various economic indicators such as GDP, employment rates, and consumer spending.

The correct answer highlights the dynamic nature of the economy where these alternating phases are inherent. Economic expansion is marked by rising output, increased demand, and generally positive economic indicators, while contraction involves reductions in output, rising unemployment, and decreased consumer confidence and spending.

Understanding the business cycle is crucial for businesses and policymakers alike, as it helps in planning and decision-making processes. By recognizing the patterns and phases, stakeholders can better prepare for the impacts of economic fluctuations, optimizing their strategies during both growth and downturns.