CA Foundation · Business Economics · Business Cycles
Which of the following is an example of a demand-side psychological cause of business cycles, as emphasised by Pigou and Keynes?
Waves of optimism and pessimism among businessmen are the psychological cause. Optimism raises investment and output, spreading the boom, while pessimism cuts investment and deepens the downturn. Pigou and Keynes highlighted these expectations, unlike real shocks such as monsoon failure or mineral discoveries.
- AWaves of optimism and pessimism among businessmen affecting investmentCorrect
- BDiscovery of a new mineral deposit
- CA monsoon failure reducing foodgrain output
- DA change in the exchange rate regime
Explanation
Pigou and Keynes stressed that swings in business expectations, optimism leading to over-investment and pessimism leading to cutbacks, create cumulative expansions and contractions. A mineral discovery, monsoon failure and exchange rate regime change are real or policy factors, not psychological waves of expectations.
Did you get it right without looking?
One question tells you little. A timed set on Business Cycles shows your real accuracy, how long you take and where you lose marks.
More Business Cycles questions
- Which of the following is a typical effect of a business cycle expansion on the banking sector?
- Which of the following is a recognised characteristic of business cycles as described in the Business Economics syllabus?
- Which of the following is a recognised characteristic of business cycles as described in Business Economics?
- According to Schumpeter's innovation theory of business cycles, what is the main cause of the upswing in economic activity?
- According to Keynesian thinking, a fall in aggregate demand during a downturn is likely to be reduced most effectively through which action …
- Which of the following is NOT a typical characteristic of the contraction phase of a business cycle?