Social Studies Praxis Practice Test

In which of the following phases of the business cycle does the economy experience decreasing unemployment rates and increasing consumer spending?

1. A. Depression

2. B. Recession

3. C. Recovery

4. D. Contraction

The correct answer is: C. Recovery

The phase of the business cycle where the economy experiences decreasing unemployment rates and increasing consumer spending is known as recovery. During this stage, the economy starts to bounce back from a previous downturn—such as a recession or depression—leading to improvements in various economic indicators. As businesses begin to expand, they hire more employees, reducing unemployment rates. This increase in job availability allows consumers to have more disposable income, which in turn boosts consumer spending. Higher consumer spending stimulates demand for goods and services, leading to further economic growth. This positive cycle is characteristic of recovery, as it sets the stage for sustained economic expansion. In contrast, during depression and recession phases, the economy typically struggles, leading to higher unemployment rates and decreased consumer spending. Contraction refers to a period of economic decline where these adverse conditions are prevalent.