Question

Place the phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.

Short answer

Peak > Expansion > Recession > Trough

Step-by-step solution

Defining the phases of the business cycle with respect to the level of GDP

Recession:In this phase, economic activity slows down, and the output and GDP start declining.

Trough:It is the lowest point of economic activities where the economy's GDP falls to its lowest point.

Peak:It is the point where the economy booms and the economic activities are at their best.

Expansion: It is an after-trough phase where an economy starts recovering from recession and the GDP begins to increase.

Decreasing order of GDP among the different phases

The GDP decreases in the following order:

• The GDP is highest when the economy is at a peak.

• The GDP is second-highest in the expansion phase as this is the growing period where the economy tries to reach its peak.

• The recession comes third in the order because, during a recession, the GDP starts declining and becomes very low.

• The trough is the point where the economy reaches after passing through the recession, and the GDP is at its lowest.