CA Foundation · Business Economics · Business Cycles
Which of the following combinations is most typical of the late stage of an expansion, close to the peak of a business cycle?
Near the peak, capacity is almost fully used and shortages of inputs push up costs and prices. Demand is strong but supply cannot expand easily. Idle capacity, unsold stocks, falling prices and pessimism are features of recession or trough phases, not the peak.
- AIdle capacity, falling prices and rising unemployment
- BFull utilisation of capacity, shortages of inputs and rising input costs and pricesCorrect
- CLow interest rates, large unsold stocks and falling profits
- DPessimistic business expectations and falling investment
Explanation
Near the peak, resources are almost fully employed, so bottlenecks appear in labour and materials and costs and prices rise. The other options describe recession or trough conditions, such as idle capacity, unsold stocks and pessimism.
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