CFA Level I · CFA Level I Exam · Understanding Business Cycles
During which phase of the business cycle is an economy most likely to experience a rising rate of growth in output together with accelerating hiring and increasing consumer confidence, before reaching its peak?
The expansion phase is the correct answer. It lies between the trough and the peak, and output, employment, income and confidence all rise. A contraction shows declining activity, and a trough is only the lower turning point, not a sustained period of growth.
- AContraction
- BExpansionCorrect
- CTrough
Explanation
The expansion runs from the trough to the peak. Output, employment and confidence rise during it. A contraction features falling output and rising unemployment. The trough is the turning point at the bottom, not a period of sustained growth.
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