CFA Level I · CFA Level I Exam · Understanding Business Cycles
Which of the following conditions is most likely to be observed in the late stage of an economic expansion, close to the peak?
Accelerating inflation and rising interest rates are most typical near the peak of an expansion. Capacity and labor constraints push up wages and prices, and policymakers tighten. Falling employment and spending, or sharply weakening confidence, belong to the contraction phase that follows the peak.
- ARising inventory-to-sales ratios alongside falling business confidence
- BAccelerating inflation and rising interest rates as capacity constraints bindCorrect
- CFalling employment and widespread declines in consumer spending
Explanation
Late in an expansion, resources become scarce, labor and capacity constraints push up wages and prices, and central banks tend to raise rates. Falling employment and spending characterize a contraction. Rising inventory ratios with falling confidence are more typical of a downturn already starting.
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