NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationMedium
A country is experiencing a prolonged period of declining economic activity, characterized by a significant fall in GDP, rising unemployment, and reduced consumer spending. This economic phase is best described as a:
- APeak
- BContraction
- CRecovery
- DExpansion
Show answer & explanationAnswer & explanation
Correct answer: B. 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. If prolonged and severe, it can be termed a recession or depression.
Why the other options are wrong
- A. A peak is the highest point of economic activity before a contraction begins.
- C. A recovery follows a contraction and involves increasing economic activity.
- D. An expansion is a period of increasing economic activity.
Business Cycle Contraction
A phase of the business cycle characterized by a general slowdown in economic activity.
- Marked by declining GDP, rising unemployment, and decreased consumer/business spending.
- If severe and prolonged, it's called a recession or depression.
- Follows a peak and precedes a trough.
Memory trick: Economy goes up and down like a roller coaster.