CA Foundation · Business Economics · Business Cycles
According to Keynes, the main cause of fluctuations in income and employment is variation in:
Keynes attributed income and employment fluctuations mainly to variations in aggregate effective demand, particularly volatile private investment driven by uncertain profit expectations. Through the multiplier these changes are magnified. Sunspots, gold supply and innovation clusters belong to other explanations of the business cycle.
- AAggregate effective demand, especially investmentCorrect
- BSunspot activity affecting harvests
- CThe supply of gold only
- DThe number of innovations by entrepreneurs
Explanation
Keynes viewed output and employment as determined by aggregate effective demand. Investment is volatile because it depends on uncertain expectations of profit, so changes in it cause cycles via the multiplier. Sunspots, gold supply and innovation clusters are emphasised by other theorists.
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