Correct Response: A. The business cycle is caused by changes in economic activity and generally consists of expansions and recessions. Expansion is characterized by an increase in production, employment, and consumer spending. The end of the expansion phase occurs when there is a decline in spending by businesses and consumers, and the economy begins to contract. An increase in prices for consumer products and services would indicate the business cycle is in the expansion phase (B). A fall in short-term interest rates would occur when the economy is already in a recession and the central bank has lowered rates (C). A rise in business productivity is an indication the economy is expanding (D), not contracting.
