CA Foundation · Business Economics · Business Cycles
Which of the following is an example of an EXTERNAL (exogenous) cause of business cycles?
A global oil price shock is an external cause because it originates outside the domestic economic system. Multiplier-accelerator interaction, inventory cycles and credit expansion arise from within the economy's own working, so they are classified as internal or endogenous causes of business cycles.
- AA sudden global oil price shock hitting an oil-importing economyCorrect
- BFluctuations in the multiplier-accelerator interaction
- CCyclical changes in inventory investment by firms
- DChanges in bank credit created by the economy's own boom
Explanation
Exogenous causes originate outside the economic system, such as wars, natural disasters, oil shocks and technology breakthroughs. The multiplier-accelerator interaction, inventory swings and credit expansion arise from within the economy, so they are internal causes.
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