Which phase of the business cycle is characterized by a significant decline in economic activity?

The phase of the business cycle characterized by a significant decline in economic activity is the recession. During a recession, the economy experiences a contraction where there is a decrease in consumer spending, business investment, and overall economic output. This can lead to increased unemployment rates and reduced incomes, as businesses may struggle to maintain profitability during this period of decline.

In contrast, the expansion phase is marked by rising economic activity, where growth in GDP, employment, and consumer confidence are notable. The peak represents the highest point of economic activity before a downturn begins, while the trough is the lowest point in the cycle, indicating when the economy begins to recover after a recession. Thus, a recession is specifically defined by its notable decline, distinguishing it from these other phases of the business cycle.