CA Foundation · Business Economics · Business Cycles
Which statement about how business cycles affect different types of goods is most accurate?
Capital goods and durable consumer goods industries experience wider swings than non-durable goods. Their purchases can be postponed in a slump and rise strongly in a boom, whereas demand for necessities like food stays relatively stable. So the impact of the cycle is uneven across industries.
- ACapital goods and durable consumer goods industries fluctuate more sharply than non-durable consumer goods industriesCorrect
- BFood and other basic necessities fluctuate more sharply than machinery
- CAll industries fluctuate by exactly the same percentage
- DOnly service sectors are affected by the cycle
Explanation
Purchases of machinery and durables like cars can be postponed in a downturn and are expanded rapidly in a boom, so their output swings widely. Necessities such as food are bought regardless, so demand is stable. Hence the claim that necessities swing more than machinery is incorrect.
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