Which statement best describes the typical behavior at a business cycle peak?

• A. Economic activity is high with low unemployment and high inflation
• B. Economic activity is low with high unemployment and low inflation
• C. GDP is falling with rising unemployment
• D. Inflation is low while growth is rapid

Answer: (A)

At a business cycle peak, the economy is overheating: output is high and operating near full capacity, unemployment is low, and inflation pressures are strong as demand runs into limited supply and wages rise. The statement that best fits this picture is the one describing high economic activity with low unemployment and high inflation.

The other descriptions fit different phases: a period of low activity with high unemployment and low inflation corresponds to a downturn; GDP falling with rising unemployment also signals contraction; inflation being low while growth is rapid would not align with a peak, since overheating inflation usually accompanies the late expansion.