Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following describes economic *Recovery*?

1. A time of high inflation and job losses

2. A phase where economic activity decreases

3. When demand increases and unemployment decreases

4. A period characterized by constant demand levels

The correct answer is: When demand increases and unemployment decreases

Economic recovery refers to a phase in the business cycle that follows a recession, during which economic activity begins to increase again. This period is marked by rising demand for goods and services, which typically leads to businesses ramping up production to meet this demand. As businesses grow and expand, they often begin to hire more employees, resulting in a decrease in unemployment rates. Hence, the correct description of economic recovery is characterized by an increase in demand and a corresponding decrease in unemployment, as firms respond to improving economic conditions. The other options fail to capture the essence of recovery. High inflation and job losses describe a more turbulent economic scenario, while a decrease in economic activity signals a recession rather than recovery. Constant demand levels would indicate stagnation rather than the revival and growth associated with the recovery phase. Understanding this dynamic is crucial for recognizing economic trends and anticipating future developments in the economy.