CA Foundation · Business Economics · Business Cycles
Which statement about the Hawtrey's monetary theory of business cycles is correct?
Hawtrey's theory says cycles are purely monetary, caused by changes in the flow of money and bank credit. Expansion of credit lifts activity and its contraction brings downturns. Sunspots relate to Jevons, innovations to Schumpeter, and under-consumption to Hobson, so those options are different theories.
- ACycles are caused purely by changes in the flow of money and bank creditCorrect
- BCycles arise from sunspot-driven changes in agricultural output
- CCycles result from innovations introduced by entrepreneurs
- DCycles occur because of under-consumption by the working class
Explanation
Hawtrey argued that the business cycle is a purely monetary phenomenon, driven by expansion and contraction of bank credit and the money flow. Sunspot ideas belong to Jevons, innovation to Schumpeter, and under-consumption to Hobson and similar writers.
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