NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationMedium
An economist is observing a period where there is a significant decline in economic activity across various sectors, characterized by falling GDP, rising unemployment, and decreased consumer spending. This phase of the business cycle is known as a:
- APeak
- BTrough
- CExpansion
- DContraction
Show answer & explanationAnswer & explanation
Correct answer: D. Contraction
A contraction is a phase of the business cycle characterized by a general slowdown in economic activity, including declining GDP, rising unemployment, and reduced consumer spending.
Why the other options are wrong
- A. A peak is the highest point of economic activity before a downturn.
- B. A trough is the lowest point of economic activity before a recovery.
- C. An expansion is a period of economic growth and increasing activity.
Business Cycle Contraction
A contraction is a phase of the business cycle where the economy is in decline, marked by falling GDP, increasing unemployment, and reduced business and consumer activity.
- Follows a peak and precedes a trough
- Characterized by negative economic growth
- Often associated with recessions
Memory trick: Every Peak Creates Troughs, Then Expands.