CA Foundation · Business Economics · Business Cycles
Consider these statements on the features of business cycles. (i) Business cycles are international in character, as a recession in a major economy can be transmitted to trading partners. (ii) Investment in capital goods is generally more volatile than consumption over the cycle. (iii) During a depression, a cycle ends permanently because the economy cannot recover. (iv) Cycles show a cumulative, self-reinforcing movement in the same direction for some time. Which statements are correct?
Statements (i), (ii) and (iv) are correct. Cycles spread internationally through trade, investment swings more than consumption, and movements are cumulative in one direction for some time. Statement (iii) is false because a trough or depression is followed by recovery, so the cycle continues.
- A(i), (ii) and (iii) only
- B(i), (ii) and (iv) onlyCorrect
- C(ii), (iii) and (iv) only
- D(i) and (iv) only
Explanation
Statement (i) is correct because trade and financial links spread cycles internationally. Statement (ii) is correct because investment is more volatile than consumption. Statement (iv) is correct because expansion and contraction are cumulative for a time. Statement (iii) is wrong because a depression is followed by recovery, so the cycle is not permanent. Therefore (i), (ii) and (iv).
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