IAI Actuarial Core Principles · Business Economics · Business activity, unemployment and inflation
In the standard description of the business cycle, which phase is characterised by falling real GDP, rising cyclical unemployment and declining business investment?
The recession or contraction phase is marked by falling real GDP, rising cyclical unemployment and weaker business investment. In an expansion output and employment rise, and at the peak output is highest, so those phases do not match the description given.
- ARecession (contraction)Correct
- BEarly expansion
- CPeak of the boom
- DLong-run trend growth
- Supply-side recovery
Explanation
A recession or contraction is the phase in which real output falls, firms cut investment and cyclical unemployment rises. In an expansion output rises and unemployment falls. At the peak, activity is at its highest and capacity constraints often push inflation up.
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