Canadian Securities Course (CSC) Practice Exam

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What characterizes a "Contraction" phase in the economy?

  1. Rising profits and increased spending

  2. Stable economic activity and declining inventory

  3. Declining profits and increased saving

  4. Growing market activity and increasing bankruptcies

The correct answer is: Declining profits and increased saving

A "Contraction" phase in the economy is associated with a decline in economic activity, which means that the economy is producing less goods and services. Declining profits and increased saving are indicators of reduced demand for goods and services, resulting in fewer business profits and increased saving by individuals and businesses. This is in contrast to a "Expansion" phase which is characterized by rising profits and increased spending. The other options, such as stable economic activity and declining inventory, or growing market activity and increasing bankruptcies, are not typical characteristics of a Contraction phase.

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