Which of the following behaviors is more likely to occur during a bad economy?

• A. Firms increase hiring and expand production.
• B. Consumers reduce their spending on non-essential goods.
• C. Households increase their luxury purchases.
• D. The unemployment rate decreases significantly.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the context of a bad economy, which typically involves lower overall economic activity, higher unemployment, and reduced consumer confidence.
2. Step 2: Recall that during a bad economy, consumers tend to become more cautious with their spending, especially on non-essential or luxury goods, to save money or due to uncertainty about future income.
3. Step 3: Recognize that firms are less likely to increase hiring or expand production during a downturn because demand for goods and services generally falls, leading to reduced revenue and a need to cut costs.
4. Step 4: Note that an increase in luxury purchases by households is unlikely during a bad economy, as luxury goods are often the first to see reduced demand when consumers tighten their budgets.
5. Step 5: Understand that the unemployment rate typically rises or remains high during a bad economy, rather than decreasing significantly, because firms may lay off workers or halt hiring.