What conditions stop the economy from growing and turn an expansion into a contraction?

The correct answer highlights that external shocks can stop economic growth and transition an expansion into a contraction. External shocks refer to unexpected events that significantly disrupt economic activity. These can include natural disasters, geopolitical events, pandemics, or sudden changes in market conditions. When such shocks occur, they often lead to decreased consumer and business confidence, disruptions in supply chains, and other factors that can result in a decrease in production and consumption. Consequently, this pulls the economy into a contraction phase.

In contrast, a decrease in foreign investment typically signals a lack of confidence from investors and could slow growth, but it is not as immediate or severe as an external shock. Low-interest capital expenditures can actually encourage growth as borrowing becomes cheaper for businesses looking to expand. Lastly, an increase in exports generally supports economic growth by increasing demand for domestically produced goods. Thus, it is the significant and sudden nature of external shocks that makes them a key factor in derailing economic expansions.