Canadian Securities Course (CSC) Level 1 Practice Exam

What are the 5 phases of the business cycle?

1. Expansion, Peak, trough, recovery, decline

2. Expansion, Peak, contraction, trough, recovery

3. Upswing, recession, recovery, trough, contraction

4. Contraction, depression, expansion, peak, trough

The correct answer is: Expansion, Peak, contraction, trough, recovery

The five phases of the business cycle are widely recognized as Expansion, Peak, Contraction, Trough, and Recovery. In this context, the correct identification of these phases is crucial for understanding how economies operate over time. Expansion refers to a period where the economy is growing, leading to increased production, employment, and consumer spending. This growth eventually reaches a Peak, which is characterized by the highest level of economic activity before a downturn begins. Following the peak, the economy enters a Contraction phase, where economic activity decreases, resulting in declines in investment and employment. After some time of contraction, the economy reaches its lowest point, known as the Trough, where output and demand hit their lowest levels. Finally, the cycle moves into a Recovery phase, indicating a rebound of economic activities as growth resumes. The other choices include phrases that do not accurately reflect the commonly accepted terminology associated with economic cycles. For example, "decline" and "depression" are not standard phases in the business cycle terminology, while "upswing" is not a widely recognized term in this context, leading to confusion. Thus, understanding the correct terminology provides clarity on how economic fluctuations impact various aspects of the market and overall economic health.