What does the term "business cycle" encompass?

The term "business cycle" refers to the fluctuations in economic activity that an economy experiences over time, which are characterized by periods of expansion and contraction. During an expansion, the economy grows, leading to increases in real GDP, employment, and consumer spending. Conversely, during a contraction, the economy experiences a decline, resulting in decreased activity, rising unemployment, and decreased spending.

This cyclical pattern indicates that economic activity is not constant but rather varies, moving through phases of growth and recession. Understanding the business cycle is crucial for policymakers and economists as it helps in formulating economic policies aimed at moderating the effects of these fluctuations.

The other options do not accurately characterize the business cycle. Consistent growth in real GDP implies a steady increase rather than the fluctuations inherent to the business cycle. Stability in economic indicators suggests a lack of such fluctuations, which contradicts the very nature of the business cycle. Changes in population and production metrics are relevant to the economy but do not specifically address the fluctuations characterized in the business cycle. Therefore, the definition that focuses on the expansion and contraction of economic activity is the most accurate representation of the business cycle.