**a) Economic expansions are followed by economic contractions**

The typical trade cycle, also known as the business cycle or economic cycle, refers to the fluctuations in economic activity over time. It is characterized by alternating periods of economic expansions and contractions. Here, we will discuss why option (a) - economic expansions followed by economic contractions - best describes a typical trade cycle.

**1. Economic Expansions:**

During an economic expansion, there is an increase in various economic indicators such as GDP, employment, income, consumption, and investment. This phase is characterized by positive economic growth, increased business activity, rising consumer confidence, and overall optimism in the economy. Some factors contributing to economic expansions include:

- Increased consumer spending: As people have more disposable income, they tend to spend more on goods and services, boosting demand and stimulating economic growth.
- Business investments: Companies are more willing to invest in new projects, expand their operations, and hire more employees during an economic expansion.
- Government policies: Expansionary fiscal and monetary policies, such as tax cuts and low interest rates, are often implemented to stimulate economic activity.

**2. Economic Contractions:**

Following an economic expansion, the economy eventually enters a phase of contraction. This phase is characterized by a decline in economic indicators, such as GDP, employment, income, consumption, and investment. Some factors contributing to economic contractions include:

- Reduced consumer spending: As economic conditions worsen, consumers become more cautious with their spending, leading to a decrease in demand for goods and services.
- Decline in business investments: Companies may become more hesitant to invest in new projects or expand their operations during economic contractions due to uncertainties and reduced profitability.
- Government policies: Contractionary fiscal and monetary policies, such as tax increases and higher interest rates, may be implemented to control inflation and stabilize the economy.

**3. Recurring Nature:**

One key characteristic of the trade cycle is its recurring nature. Economic expansions and contractions occur in a cyclical pattern, with each phase typically lasting for several years. This pattern can be attributed to various factors, including shifts in consumer and business confidence, changes in global economic conditions, technological advancements, and natural business cycles.

**Conclusion:**

In conclusion, a typical trade cycle is best described by economic expansions followed by economic contractions. During expansions, there is positive economic growth, increased employment, and rising income. However, these favorable conditions eventually give way to contractions, marked by economic decline and reduced economic indicators. Understanding the trade cycle is crucial for policymakers, businesses, and individuals to navigate the changing economic landscape and make informed decisions.

Economic expansions of followed by economic contractions