Question

capital goods industries such as industrial equipment, transportation, or construction would be good investments during the ____ stage of the business cycle?

- peak

- contraction

- trough

- expansion

Answer 1

Correct option is trough

In any business cycle, the following will be the sequence:

1. Expansion

2. Peak

3. Contraction

4. Trough

At expansion, the economy starts recovering and the national GDP starts increasing. Demand rises and the unemployment slows down

At Peak, the demand increases so much so that the GDP becomes constant. All economic indicators also stop showing any growth

In contraction, economic growth reduces. Demand tapers off and unemployment increases.

At trough, the economy moves from contraction to expansion phase. Recovery of the overall phase occurs.

Investment in Capital Goods Industry would be ideal at the Trough phase of the business cycle. Investing at this time would recover the economy more quickly, increase demand and reduce unemployment.

So, capital goods industries such as industrial equipment, transportation, or construction would be good investments during the trough stage of the business cycle