CA Foundation · Business Economics · Business Cycles
Which of the following best captures the meaning of a business cycle?
A business cycle means recurrent fluctuations in aggregate economic activity, such as output, employment and income, with periods of expansion followed by contraction around the long-run growth trend. Seasonal swings in particular goods or one-off shocks do not qualify, because they are not recurring economy-wide movements.
- AA one-time permanent fall in a country's output caused by a natural disaster
- BRecurrent fluctuations in aggregate economic activity, with expansions and contractions occurring around a long-run growth trendCorrect
- CA steady and predictable rise in output every year
- DSeasonal changes in the demand for specific goods such as woollens in winter
Explanation
A business cycle is a recurring pattern of rise and fall in overall economic activity (output, employment, income) around the long-term trend. A seasonal change affects only particular goods within a year and is not a business cycle. A one-time shock and a steady rise are not recurrent fluctuations.
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