Canadian Securities Course (CSC) Practice Exam

At what stage does the "Trough" phase occur?

1. Before economic expansion

2. After economic peak

3. After economic contraction

4. During economic stability

The correct answer is: After economic contraction

The "Trough" phase represents the lowest point in the business cycle, occurring after a period of economic contraction. This phase signifies the end of declining economic activity and the transition towards recovery and eventual expansion. It is characterized by the lowest levels of GDP, employment, and consumer spending, indicating that economic activity has bottomed out before it begins to rise again. During the trough, the economy is often marked by high unemployment rates, low consumer confidence, and reduced business investment, as businesses are cautious in their spending and hiring following a contraction. As economic conditions improve, the trough leads into the recovery phase, where growth trends begin to pick up, eventually leading to economic expansion. Understanding the trough's position in the business cycle is vital for investors and economists, as it can indicate opportunities for investment and recovery strategies. It is crucial to distinguish this phase from others such as expansion, peak, or stability, which refer to different periods of the economic cycle.