DECA+ Business Management and Administration Practice Exam

What characterizes the "expansion" phase of the economy?

1. Decrease in consumer spending

2. Strong and growing economic conditions

3. High levels of unemployment

4. Increased corporate bankruptcies

The correct answer is: Strong and growing economic conditions

The "expansion" phase of the economy is characterized by strong and growing economic conditions. During this phase, several positive indicators display a robust performance in economic activity. These conditions typically include increasing GDP, rising employment rates, higher consumer confidence, and increased investments by businesses. As businesses thrive, they tend to expand their operations, leading to more job creation and higher wages, which in turn boosts consumer spending. This cycle further stimulates growth, creating an environment where the economy is generally healthy and vibrant. The other options reflect conditions that are contrary to the hallmark of an economic expansion. A decrease in consumer spending suggests economic contraction rather than growth. High levels of unemployment indicate a struggling labor market, which does not align with expansion. Lastly, increased corporate bankruptcies would signal distress within the business sector, contrasting sharply with the positive entrepreneurial activity typical of an expansion phase. Thus, the essence of the expansion phase lies in its strength and growth, making it distinct and favorable compared to other economic conditions.