List the four phases of a typical business cycle and the macro variables that usually rise and fall in each phase.

• A. Expansion: GDP up, unemployment down, inflation up; Peak: GDP high, unemployment low, inflation high; Contraction: GDP down, unemployment up, inflation soft; Trough: output bottom, unemployment high, inflation low.
• B. Expansion: GDP down, unemployment up, inflation down
• C. Peak: GDP down, unemployment up
• D. Trough: GDP up, unemployment down

Answer: (A)

The main concept here is how real GDP, unemployment, and inflation typically move through the four phases of the business cycle: expansion, peak, contraction, and trough.

During expansion, the economy grows: real GDP increases, more workers are hired, so unemployment falls. With higher demand and utilization of resources, inflation tends to rise. At the peak, output is at a high level, unemployment is low, and inflation is high as demand pressures remain strong even as the economy overheats. In the contraction phase, activity slows: real GDP falls, unemployment rises as firms cut back, and inflation pressures ease, often easing to soft or lower inflation. At the trough, output is at a low point, unemployment is high, and inflation is low due to weak demand. This sequence—rising GDP with falling unemployment and rising inflation in expansion; high output with low unemployment and high inflation at the peak; falling GDP with rising unemployment and softer inflation in contraction; and low output with high unemployment and low inflation at the trough—best fits the standard description.

Other options mix up these directions (for example, suggesting expansion with GDP down or unemployment up, or giving inconsistent movements for peak or trough), so they don’t align with the typical pattern above. Keep in mind that real-world inflation can vary due to expectations and policy, but the outlined progression is the commonly taught pattern.