Final answer:
Boom-and-bust cycles are periods of economic expansion followed by contraction that can cause instability in a capitalist system. They are characterized by changes in employment, consumer spending, and overall economic health. The correct answer for the described effect in a capitalist system is that these cycles can lead to economic instability (option a).
Step-by-step explanation:
Boom-and-bust cycles refer to the fluctuations in an economy where a period of rapid economic expansion (boom) is followed by a period of sharp contraction or recession (bust). During the boom, the economy grows, employment rates are high, and consumer confidence boosts spending. However, this can often lead to the excess production of goods, leading to a saturated market where supply exceeds demand. This in turn can lead to a bust, where there is an economic decline characterized by rising unemployment, reduced consumer spending, and deflation or inflation. The business cycle is an essential concept in understanding these economic fluctuations. In a capitalist system, boom-and-bust cycles can lead to economic instability, as rapid growth periods are unsustainable over the long term and could result in subsequent recessions or even depressions. To mitigate these effects, governments often intervene, adjusting policies such as interest rates to stimulate or cool down the economy.
The correct answer to the question is: a) They are cycles of economic growth and recession; they can lead to instability.