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CA Foundation · Business Economics · Business Cycles

In a particular economy, real GDP index values over successive years are 100, 108, 115, 112, 104, 109. Taking the cycle from the first peak onward, which interpretation is correct?

The peak is at 115 because output rises to that level and then declines. The trough is at 104, the lowest point after the peak. The rise to 109 indicates the economy has turned upward and entered the recovery phase of the cycle.

  1. AThe peak occurs at 115, the trough at 104, and 109 shows the start of recoveryCorrect
  2. BThe peak occurs at 108, the trough at 112, and 109 shows a boom
  3. CThe peak occurs at 100, the trough at 115, and 109 shows a recession
  4. DThe trough occurs at 115, the peak at 104, and 109 shows depression

Explanation

GDP rises from 100 to 115, the highest value, which is the peak. It then falls to 112 and 104, the lowest value, which is the trough. The rise to 109 marks the start of recovery. The option placing the trough at 112 is wrong because 104 is lower.

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