CA Foundation · Business Economics · Business Cycles
Which theory explains business cycles mainly through the movement of agricultural output caused by sunspot activity affecting rainfall and crops?
Jevons' sunspot theory is the one that links cycles to sunspots. Sunspots are said to alter weather and rainfall, which changes crop yields, farm incomes and demand across the economy. Hicks' theory uses the multiplier and accelerator, and Pigou's theory uses waves of optimism and pessimism.
- AJevons' sunspot theoryCorrect
- BHayek's over-investment theory
- CPigou's psychological theory
- DHicks' multiplier-accelerator theory
Explanation
W.S. Jevons proposed that sunspots affect weather, which changes crop yields. Lower or higher farm output alters incomes and demand across the economy, generating cycles. Hicks' theory relies on the interaction of multiplier and accelerator, not weather.
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