Canadian Securities Course (CSC) Level 1 Practice Exam

What are the characteristics of the Peak phase?

1. Decline in economic activity

2. Inflation falls, triggering bond rally

3. Top of the cycle, demand begins to outstrip supply

4. Unemployment still high, wage pressure restrained

The correct answer is: Top of the cycle, demand begins to outstrip supply

The Peak phase of the economic cycle is characterized by a point where economic activity reaches its highest level before a downturn. During this phase, growth is typically robust, and demand across various sectors begins to exceed supply. This imbalance often leads to price increases, as businesses struggle to meet consumer demand. As the economy operates at or near its capacity, you might observe signs of inflation starting to build due to heightened demand. While other phases of the economic cycle have different characteristics, such as declines in activity, falling inflation, or high unemployment, these do not accurately describe the Peak phase. The essence of this phase is the culmination of economic growth, where the economy is energized, and demand is robust, foreshadowing the transition to a downturn or contraction phase. This distinction is crucial for understanding how economic cycles operate and how they impact various sectors, including investments in securities.