Final answer:
The correct answer is 'a. Depression,' which describes a severe, extended recession with significant declines in economic activity.
Step-by-step explanation:
The state of the economy when there is a severe, extended recession and a decline in business activity is known as a depression. A recession is characterized by a significant decline in real Gross Domestic Product (GDP) and typically lasts for six months to a year. However, when a recession becomes particularly prolonged and severe, with substantial declines in income and employment, it is termed a depression. This term became widely recognized during the 1930s Great Depression, which was an epoch of major economic downturn and hardship. Therefore, the correct answer to the student's question is a. Depression.