CA Foundation · Business Economics · Business Cycles
Which of the following best captures the meaning of a business cycle as understood in Business Economics?
A business cycle is a recurrent pattern of fluctuations in aggregate economic activity, with periods of expansion followed by contraction, visible in output, employment, income and prices. It differs from long-run growth, seasonal variation or a single isolated shock, none of which are repeating aggregate waves.
- AA permanent upward trend in national output over several decades
- BRecurrent fluctuations in aggregate economic activity, with expansions and contractions occurring in a roughly wave-like patternCorrect
- CSeasonal changes in demand for goods during festivals each year
- DA one-time fall in output caused by a natural disaster
Explanation
A business cycle refers to recurrent ups and downs in overall economic activity such as output, employment, income and prices. A long-run growth trend is different from cyclical movement, and seasonal or one-off shocks are not cycles in this sense. Option 1 is the only one describing recurrent fluctuations in aggregate activity.
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