Social Studies Praxis Practice Test

Which of the following economic indicators typically indicates a recessive economy?

1. A. Rising GDP

2. B. Decreasing consumer confidence

3. C. Lower unemployment rates

4. D. Increasing stock prices

The correct answer is: B. Decreasing consumer confidence

Decreasing consumer confidence is a strong indicator of a recessive economy because it reflects how individuals feel about their financial prospects and the overall state of the economy. When consumer confidence declines, it suggests that consumers are less likely to spend money, which in turn can lead to reduced demand for goods and services. This drop in consumption can lead businesses to cut back on production and potentially lay off workers, further exacerbating economic downturns. In contrast, rising GDP generally signals growth in an economy rather than a recession. Lower unemployment rates indicate a healthier job market and are typically associated with economic expansion, not contraction. Increasing stock prices often reflect positive investor sentiment and expectations of future company profits, which can indicate a thriving economy rather than a recession. Thus, decreasing consumer confidence stands out as a clear marker of economic challenges.