CFA Level I · CFA Level I Exam · Understanding Business Cycles
Which set of conditions is most likely to be observed near the peak of a business cycle?
Very high capacity utilization, tight labor markets and rising inflation pressure best describe the peak. Resources are stretched, so wages and prices rise. Excess capacity, high unemployment and falling inflation are typical of a trough, when demand is weak.
- ARising inventories, falling unemployment and slowing consumer spending growth
- BVery high capacity utilization, tight labor markets and rising inflationary pressureCorrect
- CExcess capacity, high unemployment and falling inflation
Explanation
Near the peak, resources are heavily used, so capacity utilization and labor demand are high, and wages and prices face upward pressure. Excess capacity and high unemployment describe the trough area. The first option mixes signals that are not characteristic of the peak.
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