Future Business Leaders of America (FBLA) Business Management Practice Test

During a contraction phase, what generally happens to employment?

1. Unemployment decreases.

2. Many workers are laid off.

3. Wages increase.

4. Job opportunities double.

The correct answer is: Many workers are laid off.

During a contraction phase, the economy experiences a slowdown in growth, often characterized by decreased consumer spending and reduced business activity. As companies face declining revenues, they may respond by cutting costs, which often includes laying off workers. This is why many workers are laid off during this phase, leading to an increase in unemployment rates. In contrast, options that suggest unemployment decreases, wages increase, or job opportunities doubling do not align with typical economic behavior during a contraction. Instead, all those scenarios indicate an expansion phase where economic conditions improve, leading to more hiring, higher wages, and increased job opportunities. Therefore, the action of laying off many workers is an accurate depiction of what happens during a contraction period in the economic cycle.