During the boom stage, which of the following is observed?

• A. Unemployment rises sharply
• B. Budget deficit occurs
• C. Inflation tends to rise and imports may increase
• D. Economic growth stops

Answer: (C)

In the boom phase, demand is very strong and the economy is operating near full capacity. This tends to push up prices as firms face greater demand for goods and services, leading to inflation rising. At the same time, higher incomes and purchasing power increase import demand, so imports may rise. Unemployment is usually low, and growth continues, so the idea that growth stops or unemployment rises sharply doesn’t fit a boom. Budget deficits aren’t a defining feature of a boom either; they depend on fiscal policy and other factors. So the observed pattern of rising inflation and increasing imports best matches the boom phase.