What stage in the business cycle is indicated by low interest rates and decreased capital expenditures?

The stage in the business cycle characterized by low interest rates and decreased capital expenditures is late contraction. During this phase, the economy is experiencing a downturn, and indicators such as low consumer confidence and reduced spending lead to a pullback in investment activities. Businesses tend to hold off on major expenditures due to uncertainties about the economic environment, which is reflected in decreased capital expenditures.

Low interest rates at this stage often aim to stimulate borrowing and investment; however, the lack of confidence in the economic recovery may result in businesses being hesitant to take on new projects or expand. This combination of low interest rates and decreased capital expenditures paints a picture of a contracting economy, where firms are cutting back their spending in anticipation of further economic challenges.

In contrast, early expansion typically sees rising interest rates and an increase in capital expenditures as businesses begin to invest more in growth. Late expansion features robust economic activity, often with higher interest rates as inflation may become a concern, leading companies to invest more aggressively. Early contraction indicates a slowing economy, but it may still have some investments occurring, even if they are decreasing.