How does consumer confidence typically affect economic growth?

Consumer confidence plays a crucial role in economic growth because it reflects how optimistic or pessimistic consumers feel about their financial situation and the overall economy. When consumer confidence is high, individuals are more likely to spend money on goods and services, drive demand, and subsequently encourage businesses to invest in expansion and hiring. This surge in consumer spending leads to higher sales for companies, which can result in increased production, job creation, and ultimately contribute to economic growth.

When consumers feel secure about their financial prospects—whether due to rising wages, stable employment, or a booming economy—they are less likely to hold back their spending and more likely to invest in larger purchases, such as homes and vehicles. This cycle of increased spending stimulates the economy further, as businesses react to the heightened demand by increasing their output.

In contrast, situations where consumer confidence is low can stifle economic activity, as consumers may choose to save instead of spend, leading to reduced demand and slower economic growth. Therefore, the direct relationship between heightened consumer confidence and increased economic activity underscores why the correct answer highlights the positive impact of consumer confidence on spending and economic growth.