A period of expansion in the business cycle ends when
A)real GDP is equal to potential GDP.
B)the business cycle reaches its peak.
C)the business cycle reaches its trough.
D)real GDP is less than potential GDP.

Question

Quizplus · Accepted Answer

The end of a period of expansion in the business cycle occurs when the economy reaches its peak, which is the highest point of output and employment before the economy begins to slow down and enter a contraction phase. At the peak, real GDP is above potential GDP, and the economy is overheating, leading to inflationary pressures and a need for the central bank to raise interest rates to cool down the economy. Once the peak is reached, the economy starts to slow down, and eventually, it will reach a trough, which is the lowest point of the business cycle, before starting a new period of expansion.

A Period of Expansion in the Business Cycle Ends When