CFA Level I · CFA Level I Exam · Understanding Business Cycles
Which of the following best describes a contraction in the business cycle?
A contraction is the phase running from the peak to the trough in which real GDP, employment and incomes decline. It is not a period of stable growth at potential, and it differs from seasonal fluctuations, which are regular within-year patterns unrelated to the business cycle phase.
- AA period in which real GDP, employment and incomes decline from a peak toward a troughCorrect
- BA period of stable output growth at potential with low inflation
- CA temporary rise in output driven only by seasonal demand
Explanation
A contraction (recession) runs from the peak to the trough, with declining output, employment and incomes. Stable growth at potential describes neither phase. Seasonal swings are regular within-year patterns, not a business cycle phase.
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