CA Foundation · Business Economics · Business Cycles
Which of the following is most characteristic of the peak phase of a business cycle?
At the peak, the economy runs near full capacity, so shortages of inputs and labour push up costs and prices, creating inflationary pressure. Demand growth begins to hit supply limits. Widespread idle capacity and highest unemployment belong to the trough, not the peak.
- AIdle capacity is widespread and unemployment is at its highest
- BInput shortages and rising costs emerge as the economy operates near full capacity, and inflationary pressure is strongCorrect
- CBusiness confidence is lowest and investment has collapsed
- DPrices are falling and firms are accumulating unsold stocks
Explanation
At the peak, resources are almost fully employed, so bottlenecks, scarcity of inputs and rising wages and prices appear. Idle capacity and highest unemployment describe the trough, and falling prices with unsold stocks fit contraction or depression.
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