CA Foundation · Business Economics · Business Cycles
Which feature of business cycles explains why a fall in demand for automobiles in India soon leads to lower orders for steel, tyres and auto components, and then to reduced consumer spending in the wider economy?
This reflects the synchronous, contagious character of business cycles. A downturn in one key industry, such as automobiles, passes through input-supplying and related sectors and then through incomes and spending to the whole economy, so activity moves together across sectors.
- ABusiness cycles are synchronous and spread across sectors, being contagious in natureCorrect
- BBusiness cycles affect only capital goods industries
- CBusiness cycles are purely seasonal in nature
- DBusiness cycles are unaffected by international developments
Explanation
The spread of a slowdown from one industry to related industries and then to the whole economy reflects the contagious, synchronous character of business cycles. Seasonal variations are regular within a year and do not describe this spread. The other options are incorrect because cycles affect many sectors, not only capital goods.
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