What characterizes the recovery stage of the business cycle?

• A. Decline in employment and profits
• B. Inflation accelerates rapidly
• C. Demand falls back to zero
• D. Confidence, employment and profits rise

Answer: (D)

Recovery in the business cycle is the phase after a downturn where activity begins to pick up. As demand increases, firms expand production, leading to rising profits. Hiring picks up to meet higher output, so unemployment falls. With the improving outlook, both consumers and businesses gain confidence, reinforcing the upswing. This combination—rising confidence, employment, and profits—best characterizes the recovery.

Decline in employment and profits describes a downturn, not recovery. Inflation accelerating rapidly isn’t a defining feature of the recovery phase and can vary; it’s not the core sign of a recovery. Demand falling to zero would indicate collapse, not recovery.