Canadian Securities Course (CSC) Level 1 Practice Exam

What are the characteristics of Recovery?

1. Decline in economic activity

2. Inflation falls, triggering bond rally

3. Firms increase production to meet new demands

4. Depth, Duration, Diffusion

The correct answer is: Firms increase production to meet new demands

Recovery is a phase in the economic cycle where the economy is transitioning from a trough (low point) to expansion. One of the characteristics of recovery is that firms increase production to meet new demands. During this phase, there is an increase in economic activity, leading to a rise in demand for goods and services, prompting firms to increase their production levels to meet this new demand. This increase in production is indicative of the economy's recovery and growth. Options A and B are not characteristics of the recovery phase. Option A, decline in economic activity, would be more representative of a recessionary phase rather than a recovery. Option B, inflation falling and triggering a bond rally, might happen in a different phase of the economic cycle but is not specifically related to the recovery phase. Option D, Depth, Duration, and Diffusion, are not characteristics of recovery but rather factors used to describe a recession (Depth and Duration) or a recovery period (Diffusion).