CA Foundation · Business Economics · Business Cycles
Which of the following is a recognised characteristic of business cycles?
A recognised characteristic of business cycles is that they are cumulative: a rise or fall in activity in one sector spreads to others through income and demand linkages. Cycles also transmit internationally and vary in length and size, so the claims of identical duration or single-country confinement are wrong.
- AThey are confined to a single country and never spread internationally
- BTheir effects are felt mainly in the agricultural sector and not in industry
- CTheir effects are cumulative, so a downturn or upturn in one sector tends to spread to othersCorrect
- DThey always have identical duration and amplitude from one cycle to the next
Explanation
Business cycles are cumulative in nature: reduced spending in one sector lowers incomes and demand elsewhere, spreading the contraction (and similarly an expansion). They are international in transmission, affect industry strongly, and differ in duration and amplitude between cycles.
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