CA Foundation · Business Economics · Business Cycles
A sharp fall in demand for automobiles in India is soon followed by reduced orders for steel, tyres, glass and auto components, and then lower employment and incomes in those industries. Which feature of business cycles does this best illustrate?
The example shows that business cycles are synchronised and spread across interrelated sectors. A fall in automobile demand reduces orders for suppliers like steel, tyres and glass, which lowers employment and incomes more widely, so the downturn becomes economy-wide rather than staying in one industry.
- ABusiness cycles are synchronised and spread across interrelated sectors of the economyCorrect
- BBusiness cycles are confined to a single industry
- CBusiness cycles are caused only by foreign exchange movements
- DBusiness cycles always end within one year
Explanation
The downturn in one industry passes through input-output linkages to suppliers and then to incomes and employment, so many sectors move together. This shows that cycles are pervasive and synchronised across the economy. Option B contradicts this spread, and the other options are not what the example shows.
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