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Explain which business cycle theory subscribes to each one of the follow a) Business cycles are...

Explain which business cycle theory subscribes to each one of the follow

a) Business cycles are driven by fluctuations in the expectations of the entrepreneurs regarding the future levels of business activities.

b)Business cycles are driven by changes in aggregate demand, which are, in turn,caused by fluctuations in government spending.

c)Governments should intervene to stabilize recessions; otherwise the economy will head into even more severe recessions.

Solutions

Expert Solution

  1. Business cycles are driven by fluctuations in the expectations of the entrepreneurs regarding the future levels of business activities: - Boom-and-bust cycle refers to fluctuations in which the expansion is rapid and the contraction severe
  2. Business cycles are driven by changes in aggregate demand, which are, in turn, caused by fluctuations in government spending: - The turning point from prosperity to depression is termed as Recession Phase. When demand starts falling, the overproduction and future investment plans are also given up. The increase in unemployment causes a sharp decline in income and aggregate demand. Generally, recession lasts for a short period.
  3. Governments should intervene to stabilize recessions; otherwise the economy will head into even more severe recessions:- - Also known as an upturn, the recovery stage of the business cycle is the point at which the economy "troughs" out and starts working its way up to better financial footing.

Rahul Sunny answered 2 years ago
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