CA Foundation · Business Economics · Business Cycles
An economy's real GDP (in ₹ lakh crore) was 200 at the previous cycle peak and fell to 190 at the trough. It then rose to 209 at the next peak. What is the percentage fall during the contraction and the percentage rise from trough to next peak, respectively?
The contraction is (200-190)/200 = 5%. The expansion is measured on the trough base: (209-190)/190 = 10%. So the fall is 5% and the rise is 10%. Using the earlier peak as the base for the rise would wrongly give 9.5%.
- A5% and 9.5%Correct
- B5% and 10%
- C10% and 9.5%
- D5% and 4.5%
Explanation
Contraction: (200-190)/200 = 5%. Expansion: (209-190)/190 = 19/190 = 10%. Check: 190 x 1.10 = 209. So the expansion is 10%, not 9.5%. Correct pair is 5% and 10%, which is the second option. Using the peak 200 as base for the rise gives 9/200 = 4.5%, and 19/200 = 9.5% is the wrong-base error.
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