Association of Chartered Certified Accountants (ACCA) Certification Practice Test 2025 - Free ACCA Practice Questions and Study Guide

The trade cycle is characterized by fluctuations in the rate of growth of real GDP. This cycle typically consists of four phases: expansion, peak, contraction, and trough. During the expansion phase, economic activity increases, leading to a rise in real GDP. As the economy nears its capacity, it reaches a peak where growth slows down. Following the peak, the economy enters a contraction phase, marked by declining real GDP, which may eventually lead to a trough, denoting the lowest point of economic activity before recovery begins again.

This understanding highlights the dynamic and cyclical nature of economic growth, indicating that the economy does not grow at a constant rate but rather experiences periods of both growth and decline. The other options do not accurately capture this characteristic: a constant rate of economic growth suggests stability rather than fluctuation; a direct relationship between unemployment and inflation reflects a different aspect of economic theory; and a stable banking system relates to financial institutions rather than the broader economic growth cycle.