SIE (Securities Industry Essentials) Practice Exam

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When the economy enters a phase of slowing down from peak efficiency, this phase is called:

Expansion
Peak
Contraction
Recovery

The correct answer is: Contraction

During the contraction phase, the economy is not functioning at its full potential and is in decline. Option A, expansion, is the opposite of the contraction phase as it refers to a period of economic growth and increasing production. Option B, peak, is the highest point in the economic cycle and marks the end of the expansion phase and the beginning of the contraction phase. Option D, recovery, refers to the period of economic growth after a period of contraction, which is not what is being described in the question. Therefore, option C, contraction, is the most appropriate answer.