Which of the following indicates a contraction in the economy?

A contraction in the economy refers to a period when economic activity decreases, which is typically reflected in declining demand for goods and services, reduced investment, and lower levels of consumer spending. A decrease in demand for goods and services is a clear indicator of economic contraction because it suggests that consumers and businesses are less willing or able to spend money. When demand weakens, businesses may cut back on production, resulting in slower economic growth or even a decline in GDP.

In contrast, an increase in consumer confidence generally leads to increased spending, fostering economic expansion. Growth in GDP signifies an expanding economy and rising output, while the stabilization of inflation may suggest that the economy is neither too hot nor too cold but does not indicate contraction on its own. Thus, the option highlighting a decrease in demand for goods and services accurately represents a contraction in economic activity.