CA Foundation · Business Economics · Business Cycles
Which of the following is an exogenous (external) cause of business cycles, as opposed to an endogenous (internal) cause?
A sudden global crude oil price shock caused by war is an exogenous cause because it originates outside the economic system. The multiplier-accelerator interaction, over-investment and bank credit swings arise from the economy's own workings, so they are endogenous explanations of business cycles.
- AThe multiplier-accelerator interaction in an economy
- BOver-investment followed by excess capacity in firms
- CA sudden global crude oil price shock caused by warCorrect
- DFluctuations in bank credit arising from the banking system's own lending behaviour
Explanation
Exogenous theories attribute cycles to factors outside the economic system such as wars, oil shocks, weather or technological discoveries. The multiplier-accelerator, over-investment and credit cycles arise from within the economy's own working, so they are endogenous. Hence only the oil price shock is external.
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