In the business cycle, different phases represent the fluctuations in economic activity over time. Here’s a breakdown of these phases:
1. Peak: This is the height of the business cycle, where economic activity is at its highest. This might be accompanied by high levels of employment and output, but also potentially inflationary pressures.
2. Contraction: After the peak, the economy typically begins to slow down. During this phase, economic activity decreases, leading to reductions in employment and production. This phase is characterized by a decline in the overall economic indicators.
3. Trough: This is the lowest point of the business cycle, marking the end of the contraction phase. At this stage, economic activity is at its weakest, with high unemployment and low levels of production.
4. Expansion: After reaching the trough, the economy starts to recover and enter a phase of growth. In this phase, economic indicators start to improve, including increased employment and production.
5. Growth: This phase is generally seen under expansion, where the economy grows stronger and all the economic indicators are favorable.
Given these phases, immediately following a peak in the business cycle is the phase where economic activity starts to decline. This phase is known as "contraction".
Thus, the correct answer is:
C) contraction
