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

What typically happens in a recession?

1. Businesses see increased hiring.

2. Consumer spending decreases significantly.

3. Investment in new ventures increases.

4. All economic indicators improve.

The correct answer is: Consumer spending decreases significantly.

During a recession, it is common for consumer spending to decrease significantly. This decline occurs because individuals often face uncertainty about their financial futures, leading them to cut back on expenses, particularly on non-essential items. As job security diminishes and incomes may fall, consumers prioritize saving over spending, directly impacting the overall economy. The context around consumer behavior in a recession is critical. Many consumers may delay major purchases, such as homes or automobiles, and shift their spending toward essential goods and services. This reduced consumer spending can lead to lower sales for businesses, prompting them to respond by reducing production and, in some cases, laying off employees. This cycle can further exacerbate the recession, as decreased consumer spending results in decreased corporate revenues and investment. The other choices, while possible in different economic conditions, are generally not characteristic of a recession. Increased hiring is typically observed during periods of economic growth, not recession. Investment in new ventures tends to decline, as businesses are more cautious about expanding during economic downturns. Additionally, economic indicators usually worsen rather than improve during a recession, highlighting the contraction of economic activity.