CA Foundation · Business Economics · Business Cycles
Which of the following is NOT a typical characteristic of the contraction phase of a business cycle?
Rising investment and growing business confidence is not typical of contraction. In a contraction, demand, output, employment and incomes decline, and unsold inventories accumulate while confidence is weak. Rising investment and optimism belong to the expansion phase of the cycle.
- ARising investment and growing business confidenceCorrect
- BFalling demand for goods and services
- CDeclining employment and incomes
- DAccumulation of unsold inventories with firms
Explanation
During contraction, demand falls, firms cut output and employment, incomes decline and unsold stocks build up. Business confidence is low, so investment falls rather than rises. Rising investment with growing confidence is characteristic of expansion, which makes it the exception.
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