CA Foundation · Business Economics · Business Cycles
Real GDP of an economy in successive years is ₹80 lakh crore, ₹84 lakh crore, ₹88.2 lakh crore and ₹84.5 lakh crore. The economy is best described as having passed through which phase between the second and third year, and which between the third and fourth?
Expansion followed by contraction. Output rose from ₹84 to ₹88.2 lakh crore, showing expansion, and then fell to ₹84.5 lakh crore, showing contraction. The third year therefore marks roughly the peak, after which the economy begins to decline.
- AContraction, then expansion
- BExpansion, then contractionCorrect
- CExpansion, then recovery from trough
- DPeak, then trough
Explanation
From 84 to 88.2 output rises (5% growth), so the economy is expanding. From 88.2 to 84.5 output falls, so it is contracting. The third year is near the peak. Option one reverses the order of the changes.
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