During which phase of the business cycle does the economy typically become unsustainable and experience a slowdown in spending?

The correct answer is the peak phase of the business cycle. During this phase, the economy reaches its highest point of activity, reflecting maximum output and employment levels. However, this peak can lead to unsustainable economic conditions as businesses may operate at full capacity, and consumer spending may start to decline due to inflationary pressures.

As production and spending exceed sustainable levels, resources become strained, and inflation can rise. This typically results in a slowdown in spending as consumers and businesses adjust to overpriced goods and services. When these high levels can no longer be maintained, it often leads to the subsequent recession phase, where economic activity and spending decline significantly.

In contrast, the trough represents the lowest point of the business cycle and indicates a phase of economic recovery, followed by improvement. Recovery indicates a rebound from the slowdown, with increasing consumer and business spending. Therefore, while all phases are important in understanding the business cycle, the peak is crucial because it's where conditions become unsustainable, setting the stage for a subsequent decline.