Canadian Securities Course (CSC) Level 1 Practice Exam

What are the characteristics of the Trough?

1. Interest rates fall, triggering bond rally

2. GDP returns to its peak

3. Inflation falls, triggering bond rally

4. Lowest point of the cycle

The correct answer is: Lowest point of the cycle

The trough represents the lowest point in the economic cycle, where economic activity is at its minimum. This stage is characterized by reduced consumer spending, low business investment, and typically high unemployment rates. At this phase, the economy is vulnerable, and most economic indicators, such as GDP, are at their lowest levels. Identifying the trough is essential for recognizing when the economy may begin to recover and move towards a phase of expansion. Understanding the nature of the trough is crucial for economic forecasting and investment strategies, as recognizing this low point can help investors position themselves for future growth as the economy begins to improve. During a trough, central banks may also implement policies to stimulate the economy, such as lowering interest rates, but the defining aspect is that it marks the end of a contractionary phase before recovery begins.