Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does the trade cycle typically impact in an economy?

1. The level of structural unemployment only

2. The annual percentage increase in national output

3. The overall cost of living

4. The government’s budget deficit

The correct answer is: The annual percentage increase in national output

The trade cycle, also known as the business cycle, refers to the fluctuations in economic activity that an economy experiences over a period of time. It typically consists of periods of expansion and contraction. During the expansion phase of the trade cycle, economic activity increases, which often leads to a rise in investment and consumer spending. This increased economic activity contributes to an annual percentage increase in national output, commonly measured by Gross Domestic Product (GDP). Therefore, the trade cycle directly affects the growth rate of national output, as periods of economic growth can significantly boost national productivity and output levels. In contrast, during a contraction phase, economic activity declines, potentially leading to negative growth rates. This cycle of alternating phases highlights how the trade cycle impacts the annual percentage increase in national output effectively, reflecting the interplay between various economic factors including employment, production, and consumption. While the trade cycle may influence aspects such as unemployment, cost of living, or government budget deficits, these factors do not capture the broader effect of the trade cycle as succinctly as the impact on national output growth. Hence, the annual percentage increase in national output is the most relevant impact of the trade cycle within the context of the question.