CA Foundation · Business Economics · Business Cycles
In the usual four-phase description of a business cycle, which phase immediately follows the peak?
Contraction, also called recession, follows the peak. After output and employment reach their highest level at the peak, demand weakens and economic activity starts to decline. The trough comes only later, once the contraction has run its course, and recovery follows the trough.
- ARecovery
- BContraction (recession)Correct
- CExpansion
- DTrough
Explanation
The cycle moves from trough to recovery/expansion, then to the peak, then to contraction, and finally back to a trough. Recovery follows the trough, not the peak. The trough comes only after contraction has run its course.
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