CA Foundation · Business Economics · Business Cycles
Which of the following is an example of an exogenous (external) cause of business cycles rather than an endogenous one?
A sudden global oil price spike caused by war is an exogenous cause, because it originates outside the economy's own working. Inventory changes, multiplier-accelerator interaction and credit expansion arise from within the economic system and are therefore treated as endogenous causes of business cycles.
- AFluctuation in inventories driven by firms' sales expectations
- BA sudden global spike in crude oil prices due to war affecting Indian production costsCorrect
- CInteraction of the multiplier and the accelerator
- DChanges in bank credit created by the banking system's own lending behaviour
Explanation
Exogenous causes originate outside the economic system, such as wars, oil shocks, weather or policy shocks. A global oil price spike due to war fits this. Inventory swings, multiplier-accelerator interaction and credit expansion arise from within the economy, so they are endogenous.
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