Business Cycles - CA Foundation Past Paper PDF

# Business Cycles ## **5** **Marks of Objective, Short Notes, Distinguish Between, Descriptive & Practical Questions** | Type | Marks | |---|---| | Objective | 12 | | Short Notes | 12 | | Distinguish | 12 | | Descriptive | 12 | | Practical | 12 | ## Legend **Marks** ![Graph displaying the mark...

# Business Cycles ## **5** **Marks of Objective, Short Notes, Distinguish Between, Descriptive & Practical Questions** | Type | Marks | |---|---| | Objective | 12 | | Short Notes | 12 | | Distinguish | 12 | | Descriptive | 12 | | Practical | 12 | ## Legend **Marks**  **Examinations** 18M, 18N, 19M, 19N, 20N, 21J, 21Jul, 21D, 22J, 22D **For detailed analysis Login at www.scanneradda.com for registration and password see first page of this book.** ## **4.369** # Solved Scanner CA Foundation Paper - 4A ## **PAST YEAR QUESTIONS AND ANSWERS** ### **2018-MAY** **[1] Rampant unemployment is found in:** (a) Boom (b) Recovery (c) Contraction (d) Depression **Answer: ** (d) Because very much unemployment is seen in depression. **(1 mark)** **[2] According to which economist trade cycle is a purely monetary phenomenon** (a) Schumpeter (c) Hawtrey **Answer:** (c) 'Trade cycle is purely Monetary phenomenon' is said by one and only Hawtrey **(1 mark)** **(b) Pigou** **(d) Marshall** **[3] Greatest depression suffered by economy in which year.** (a) 1924 (c) 2008 **Answer:** (b) 1930 is a year in which greatest depression suffered by economy **(1 mark)** **(b) 1930** **(d) 2009** **[4] Last stage of recession is called:** (a) Depression (c) Slowdown **Answer:** (a) Depression is the last stage of recession and not slowdown and recovery **(1 mark)** **(b) Recovery** **(d) All of these.** ### **[Chapter 5] Business Cycles** ## **4.371** **[5] In the long run, a reduction in labour supply would cause output to and the aggregate price level to** (a) fall; rise (c) rise, fall **Answer: ** (a) If firm in long run, reduce supply of labour then it will cause fall in output whereas rise in aggregate price. **(1 mark)** **(b) fall, fall** **(d) rise, rise.** **[6] Which of the following macro economic variables would you include in an index of leading economic indicators?** (a) Employment (c) Real interest rates **Answer:** (d) The variables that change before the real output changes are called' leading indicators'. They often change prior to large economic adjustment. It will include residential investment as one of its variables. **(1 mark)** **(b) Inflation** **(d) Residential investment** **[7] Industries that are extremely sensitive to the business cycle are the** (a) durable goods and service sectors (b) non durable goods and service sectors (c) capital goods and non-durable goods sectors (d) capital goods and durable goods sectors **Answer:** (d) Capital goods and durable goods both are of same nature i.e. long term period. These both goods are extremely sensitive to the business cycle. Without these business can not go smooth by. **(1 mark)** **[8] An economic variable that moves in the opposite direction as aggregate economic activity down in expansions, up in contractions is called.** (a) procyclical (c) a cyclical **Answer:** (b) An economic variable that moves in the opposite direction as aggregate economic activity (down in expansion and up in contraction) is called counter cyclical **(1 mark)** **(b) counter cyclical** **(d) a leading variable** ### **4.372** ## **Solved Scanner CA Foundation Paper - 4A** ### **2018 - NOVEMBER** **[9] How many phases are their in business cycle?** (a) Four (c) One **Answer:** (a) Business cycle has 4 Phases; expansion, peak contraction, trough. **(1 mark)** **(b) Five** **(d) Many** **[10] The world economy suffered the longest, deepest and most widespread depression of the 20th century during?** (a) 1934 (b) 1928 (c) 1930 (d) 1932 **Answer:** (c) The world economy suffered most widespread depression of the 20th Century during 1930s. It started in US. **(1 mark)** **[11] Business cycle is contagious and in character?** (a) Local (b) Regional (c) National (d) International **Answer:** (d) Business cycle is International in character as it effects all over the world. **(1 mark)** **[12] Which External Factor affect the business cycle?** (a) Population growth (b) Variation in government spending (c) Money supply (d) Macro economic policies **Answer:** (a) Population growth is the factor which affects business cycle. **(1 mark)** ### **[Chapter 5] Business Cycles** ## **4.373** **[13] Which internal factor affect the Business cycle?** (a) Fluctuations in investment (b) Natural factors (c) Technology shocks (d) Population growth **Answer: ** (a) Fluctuations in Investment is the Internal factor which affect business cycle. **(1 mark)** **[14] Whose statement out of these is false?** (a) Hawtrey - "Trade cycle is purely Monetary phenomena" (b) Keynes - "Fluctuations in aggregate Demand" (c) Pigou - "Fluctuations in investment" (d) Schumpeter - "Innovations" **Answer:** (c) According to Pigou, modern business activities are based on anticipation of business community and are affected by waves of optimism or pessimism. **(1 mark)** **[15] When once peak is reached, increase in demand is halted, then phase begins?** (a) Trough (b) Contraction (c) Expansion (d) Trend **Answer:** (b) Once peak is reached, increase in demand is halted and start decreasing in certain sectors and therefore, phase of contraction begins. **(1 mark)** **[16] Fashion Retailer is business of?** (a) Cyclical business (b) Sun rise business (c) Sluggish business (d) None of these **Answer:** (a) Business whose fortunes are closely by related to the rates of economic growth are referred to as cyclical business. **(1 mark)** ### **4.374** ## Solved Scanner CA Foundation Paper - 4A **[17] Features of business cycles include?** (a) Occurs periodically (b) Have four different phases (c) Originate in free Market Economy (d) All of the above. **Answer: ** (d) Feature of business cycle are: 1. It occurs periodically although they do not exhibit same regularity 2. They have four distinction phases. 3. It occurs in free market economy. 4. It is pervasive in nature Therefore, (d) is the right option all of the above. **(1 mark)** ### **2019 - MAY** **[18] Which of the following is true about leading indicators?** (a) Measurable economic factors (b) Changes after real output (c) Both (a) and (b) (d) None **Answer :** (a) A. leading indicator is a measurable economic factor that changes before the economy starts following a particular trend/pattern. **(1 mark)** **[19] The internal causes of business cycle is** (a) Fluctuation in effective demand (b) Technology shocks (c) Both (a) and (b) (d) None **Answer:** (a) Business Cycle is the downward and upward movement of Gross Domestic Product (GDP) around its long term growth trend. The internal causes of such movement includes: **(1 mark)** ### **[Chapter 5] Business Cycles** ## **4.375** (i) Fluctuations in effective demand (ii) Fluctuations in investment (iii) Variation in government spending (iv) Macro economic policies (v) Money supply (vi) Psychological factors The external causes are: (i) Post war reconstruction (ii) Technclogy shocks (iii) Natural factors (iv) Population growth. **[20] Economics activities will be declining in the phase of** (a) Expansion (b) Depression (c) Contraction (d) Peak **Answer :** (c) An expansion is characterised by increasing employment, economic growth and upward pressure on prices. A peak is the highest point when the economy is at maximum allowable output, full employment. Contraction is characterised where growth slows, economic activities declines pricing pressure subside. Depression is the point where the economy has hit a bottom from which next phase of expansion and contraction will emerge. **(1 mark)** **[21] Business Cycle occurs** (a) Periodically (b) In different phases (c) Both (a) and (b) (d) None of the above **Answer:** (c) Business cycle have certain features such as: • It occurs periodically although they do not exhibit the same regularity. Its duration and intensity varies. **(1 mark)** ### **4.376** ## Solved Scanner CA Foundation Paper - 4A It have distinct phases of expansion, peak, contraction and trough with indefinite length. Thus, option (c) is correct. **[22] According to some economists, _ are the prime causes of business cycles.** (a) Fluctuations in effective demand (b) Fluctuations in investments (c) Macroeconomic policies (d) All of the above **Answer :** (b) Business cycles occur due to various causes which can be both external or internal. These includes: • Fluctuations in effective demand • Fluctuations in investment (Prime Cause) • Variation in Government spending • Macro economic policies Money supply. Hence, option (b) is correct. **(1 mark)** **[23] Which is not related to great depression of 1930?** (a) It started in USA (b) John Maynard Keynes regarded lower aggregate expenditure as the cause (c) Excess Money Supply (d) Both (a) and (b) **Answer :** (c) The Great Depression of 1930 was started in US and became worldwide. The British economist John Maynard Keynes regarded lower aggregate expenditures in the economy to be a cause of massive decline in employment and income. The economies of the world came out of recession and entered the expansion phase due to increase in money supply, international inflow of gold, rise in government spending etc. Thus, option (c) is not related to great depression of 1930. **(1 mark)** ### **[Chapter 5] Business Cycles** ## **4.377** **[24] Which of the following is not the phase of business cycles?** (a) Prosperity (b) Upswing (c) Reconstruction (d) Depression **Answer :** (c) A typical business cycle has 4 distinct phases 1. Expansion/upswing 2. Peak/Prosperity 3. Contraction/Downswing/Recession 4. Trough/Depression **(1 mark)**  **[25] Boom and depression in business cycle are** (a) Turning points (b) Equilibrium points (c) Both (a) and (b) (d) None of the above **Answer :** (a) Boom and depression are the turning points. Boom or Peak is the highest point where economic growth stabilises for short time and then moves in reverse direction and same is with trough or depression. **(1 mark)** ### **4.378** ## **Solved Scanner CA Foundation Paper - 4A** **[26] Which is not the characteristic feature of expansion phase in business cycle?** (a) Increase in national output (b) Unemployment (c) Rise in price and costs (d) Boost in business confidence **Answer: (b)** (b) Expansion phase in business cycle is characterised by increase in national output, more employment opportunities, sales, profits, rising stock prices. Prices and costs also tend to rise faster. There is an increase in prosperity, high standard of living, business confidence. The growth rate slowly reaches to the peak. Thus, unemployment is not the characteristic feature of this phase **(1 mark)** **[27] "Modern business activities are based on the anticipations of business community and are affected by waves of optimism or pessimism, according to** (a) Pigou (b) Keynes (c) Hawtrey (d) Schumpeter **Answer:** (a) According to Pigou, "Modern business activities are based on the anticipations of business community and are affected by waves of optimistic or pessimism". **(1 mark)** ### **2019 - NOVEMBER** **[28] Find the odd man out:** Which of these is not a coincident factor? (a) Retail sale (b) Industrial production (c) Inflation (d) New orders for plant & machine **(1 mark)** **Answer: ** (d) Coincident indicator are also called concurrent indicators, coincide or occur simultaneously with the business - cycle movements. For Example: (GDP) Gross domestic product * Industrial production * Inflation * Personal income • Retail sale Financial market trends. But new orders for plant and machine is a leading indicator. **[29] Excess capacity in capital industries leads to** (a) Peak (b) Trough (c) Expansion (d) Recovery **(1 mark)** **Answer:** (b) Excess capacity in capital industries leads to trough a typical feature of depression is the fall in the interest rate. With lower interest rate, the demand for holding liquid money (i.e. in cash) increases. Industries, especially capital and consumer durable goods industry, suffer from excess capacity. **[30] Here, growth moves in reverse direction** (a) Peak (b) Expansion (c) Contraction (d) Recovery **(1 mark)** **Answer:** (a) The term peak refers to the top or the highest point of the business cycle. In the later stages of expansion, inputs are difficult to find as they are short of their demand and therefore input prices increases. This is the end of expansion and it occurs when economic growth has reached a point where it will stabilize for a short time and then move in the reverse direction. ### **4.380** ## **Solved Scanner CA Foundation Paper - 4A** **[31] Frictional unemployment exists in** (a) Peak (b) Contraction (c) Expansion (d) Recovery **Answer:** (c) Frictional unemployment exists in expansion phase i.e., there is increase in national output there is involuntary unemployment is almost zero and whatever unemployment is there is either frictional (i.e. due to change of jobs, or suspend word due to strikes or due to imperfect mobility of labour etc. **(1 mark)** **[32] In which stage maximum production occurs.** (a) Peak (b) Expansion (c) Boom or Expansion (d) Trough or boom **Answer:** (a) The term peak refers to the top or highest point of the business cycle. Here in this stage maximum production occurs. Inputs are difficult to find as they are short of their demand and therefore input prices increases. This stage is the end of expansion and it occurs when economic growth has reached a point where it will stabilize for short period of time. **(1 mark)** **[33] Unemployment is caused due to structural changes is known as?** (a) Ethnic unemployment (b) Involuntary unemployment (c) Structural (d) None **Answer:** (c) Unemployment is caused due to structural changes is known as structural unemployment. It is almost zero and whatever unemployment is there is either fictional (i.e. due to change of jobs, strike) or structural unemployment caused due to structural changes in the economy. And all these types of unemployment occur in expansion phase. **(1 mark)** ### **[Chapter 5] Business Cycles** ## **4.381** **[34] At trough production is?** (a) High (b) Low (c) Negative (d) None **Answer:** (b) At trough production is low. It is a situation where there is lower rate of interest people's demand for holding liquid money (i.e. in cash) increases. Despite lower interest rates, the demand for credit declines because investors confidence has fallen. At the depth of depression all economic activities touch the bottom and the phase of trough is reached. It is a very agonizing period causing lots of distress for all. **(1 mark)**  **[35] Stage at which actual demand is stagnated?** (a) Peak (b) Boom or Peak (c) Contraction (d) Tough **(1 mark)** **Answer:** (b) Peak is a stage at which actual demand is stagnates. As peak refers to the top or highest point of the business cycle. Output prices also rise rapidly leading to increased cost of living and greater strain on fixed income earners. Consumers begin to review their consumption expenditure on housing, durable goods etc. Actual demand stagnates. This is the end of expansion and it occurs when economic growth has reached a point where it will stabilize for a short time and then move in the reverse direction. ### **4.382** ## **Solved Scanner CA Foundation Paper - 4A** **[36] A change of reaction producer cancel their order in which, stage?** (a) Peak (b) Contraction (c) Trough (d) None **(1 mark)** **Answer:** (b) Contraction is a stage where economy cannot endless by grow. During contraction, there is fall in the levels of investment and employment. Producers being aware of the fact that they have indulged in excessive investment and over production, respond by holding back future investment plans, cancellation and stoppage of orders for equipments and all types of inputs including labour. **[37] Which of the following is true:** (a) Depression is severe form of trough (b) Depreciation causes fall in interest rate. (c) Both (a) and (b) (d) None **(1 mark)** **Answer:** (a) Depression is the severe form of trough. During this phase of business cycle growth rate becomes negative and the level of national income and expenditure declines rapidly. Demand for products and services decreases, prices are at their lowest and decline rapidly forcing firms to shutdown several production facilities decreases, prices are at their lowest. It is a very agonizing period causing lots of distress for all. **[38] China's recent slowdown caused** (a) Cycle of decline and panic across the world. (b) Countries across the globe were able to insulate themselves from the crisis. (c) Stock Markets in the emerging economics largely remained unaffected (d) Old technology fueled the economic decline. **(1 mark)** **Answer:** (a) A decline in China's economy had caused adverse affect on other countries. It causes decline and panic across the world. ### **[Chapter 5] Business Cycles** ## **4.383** Business cycles are contagious and are international in character. They begin in one country and mostly spread to other countries through trade relations. For example, the great depression of 1930s in the USA and Great Britain affected almost all the countries, especially the capitalist countries of the world. **[39] What of the following are not external causes?** (a) Past war reconstruction (b) Population growth (c) Technology factors (d) Fluctuation in effective demand **Answer:** (d) External cause or exogenous factors which may lead to boom or bust are: (a) Wars (b) Post war Reconstruction (c) Technology shocks (d) Natural shocks (e) Population growth :: Illustration in effective demand is a internal cause. **(1 mark)** ### **2020 - NOVEMBER** **[40] Modern business activities are based on the anticipations of business community and are affected by waves of optimism (or) Pessimism is said by:** (a) Hawtrey (b) Pigou (c) Keynes (d) Schumpeter **Answer:** (b) The famous author Pigou said Modern business activities are based on the anticipations of business community and are affected by waves of optimism (or) pessimism. **(1 mark)** ### **4.384** ## **Solved Scanner CA Foundation Paper - 4A** **[41] Which of the following phase occurs after threat and before peak?** (a) Expansion (b) Depression (c) Boom (d) Recession **Answer:** (a) Expansion is the phase which occurs after trough and before peak. Expansion is characterized by increase in national output and an other economic variables. **(1 mark)** **[42] Which indicators coincide as occur simultaneously with the business cycle movements?** (a) Lagging (b) Leading (c) Concurrent (d) Legal. **Answer:** (c) Coincident economic indicators also called as concurrent indicators coincide or occurs simultaneously with the business cycle movements. **(1 mark)** **[43] What is the most visible sign of recession in an economy?** (a) Fall in the level of employment (b) Rise in the inventory cost (c) Full in price level (d) Weakening stock market **Answer:** (c) Falls in the price level is the most appropriate and visible sign of recession in an economy. **(1 mark)** **[44] Taxation policy of government is the part of:** (a) Monetary Policy (b) Fiscal Policy (c) Exim Policy (d) Industry Policy **Answer:** (b) Taxation policy of government comes under fiscal policies of the government. **(1 mark)** ### **[Chapter 5] Business Cycles** ## **4.385** **[45] During the phase of tough of business cycle, the growth rate become:** (a) High (b) Low (c) Negative (d) Zero **Answer:** (c) During the phase of trough of business cycle the growth rate becomes negative. **(1 mark)** **[46] _ is measurable economics factor that changes before economy starts to follow a particulars pattern of trend.** (a) Leading indicator (b) Coincident indicator (c) Heading indicator (d) Concurrent indicator **Answer:** (a) A Leading indicator is a measurable economic factor that changes before the economy starts to follow a particular pattern or trend i.e. they change before the real output changes. **(1 mark)** **[47] Which of the following is an internal cause of business cycles?** (a) Wars (b) Natural factors (c) Fluctuation in effective demand (d) Population growth **Answer:** (c) Fluctuation in effective demand are the internal causes of business cycle rest are the external causes of business cycle. **(1 mark)** **[48] Phases of business cycles are:** (a) Peak, Recession, depression and recovery (b) Bottom, recession, tough and boom (c) Peak, depression, trough and boom (d) Peak, depression, bust and boom **Answer:** (a) Phases of business cycles are: Peak, recession, depression and recovery. **(1 mark)** ### **4.386** ## **Solved Scanner CA Foundation Paper - 4A** **[49] Which is not an example of coincident indicator?** (a) Inflation (b) GDP (c) Interest rate (d) Financial market trend **Answer:** (c) Interest rate is not the example of coincident indicators rest are the examples of coincident indicators. **(1 mark)** **[50] During the phase _ there is fall in level of investment and employment.** (a) contraction (b) depression (c) boom (d) recovery **(1 mark)** **Answer:** (a) During the phase of contraction there is fall in the level of investment and employment. **[51] The most important feature of business cycle is:** (a) Persuasive nature (b) Regular length (c) Periodic intensity (d) None **Answer:** (a) Persuasive nature is the most important feature of a business cycle. **(1 mark)** ### **2021 - JANUARY** **[52] Feature of _ is fall in interest rates and people's de nand for holding liquid money.** (a) Contraction (b) Peak (c) Trough & Depression (d) Recovery **(1 mark)** **Answer:** (c) Trough and Depression Feature of Trough and depression is fall in interest rates and people demand for holding liquid money. **[53] Business that are more vulnerable to charges in business cycle and whose fortunes are closely linked to rate of economic growth are called as** (a) Vulnerable Business (b) Cyclical Business (c) Leading Business (d) Lagging Business **(1 mark)** **Answer:** (b) Cyclical business Business that are more vulnerable to changes in business cycle and whose features are closely linked to rate of economic growth are called as cyclical business. **[54] Optimistic and Pessimistic mood of business community also affects the economic activities is view of** (a) Hawtrey (b) Schumpeter (c) Pigou (d) Marshall **(1 mark)** **Answer:** (c) Pigou ↑ Optimistic and Pessimistic mode of business community also effects the economic activities in view of Pigou. **[55] According to law trey, which of the following is correct?** (a) Trade Cycle occurs as a result of innovation (b) Trade Cycle is purely monetary phenomenon (c) Fluctuation in economy activity is due to fluctuation in demand (d) Fluctuation in government expenditure **(1 mark)** **Answer:** (b) Trade cycle is purely monetary phenomenon According to Hawtrey, Trade cycle is purely monetary phenomenon. ### **4.388** ## **Solved Scanner CA Foundation Paper - 4A** **[56] The term business cycle refers to** (a) The ups and downs in production of commodities (b) The fluctuation levels of economic activity over a period of time (c) Decline in economic activities over prolonged period of time (d) Increasing unemployment rate and diminishing rate of savings **(1 mark)** **Answer:** (b) The fluctuating levels of economic activity over a period of time The term business cycle refers to fluctuating level of economic activity over a period of time. **[57] During recession, the unemployment rate _ and output _** (a) Rises; Falls (b) Rises; Rises (c) Falls; Rises (d) Falls; Falls **(1 mark)** **Answer:** (a) Rises; falls During recession, the unemployment rate rises and output falls. **[58] Which of the following is not a characteristic of business cycles?** (a) Business cycles have serious consequences on the well being of the society (b) Business cycles occur periodically, although they do not exhibit the same regularity (c) Business cycles have uniform characteristics and causes (d) Business cycles are contagious and un predictable **Answer:** (c) Business cycle have uniform characteristics and causes. Business cycle do not have uniform characteristics and causes. **(1 mark)** **[59] According to _ trade cycles occurs due onset of innovations.** (a) Hawtrey (b) Adam Smith (c) J. M. Keynes (d) Schumpeter **(1 mark)** ### **[Chapter 5] Business Cycles** ## **4.389** **Answer:** (d) Schumpeter According to Schumpeter trade cycle occur due to onset of innovations. **[60] A measurable economic factor that changes before the economy starts follows particulars pattern/trend is:** (a) Leading Factor (b) Lagging Factor (c) Coincident Factor (d) Concurrent Factor **(1 mark)** **Answer:** (a) Leading Factor A measurable economic factor that changes before the economy starts follows particular trend is leading factors. **[61] Coincident indicators are also known as _** (a) logging indicators (b) Concurrent indicators (c) Effective indicators (d) Leading indicators **(1 mark)** **Answer:** (b) Concurrent indicators Coincident Indicators are known as concurrent indicators. **[62] Business cycle is contagious and _ in character?** (a) Local (b) Regional (c) National (d) International **(1 mark)** **Answer:** (d) International Business cycle is international in character as it effects all over the world. ### **4.390** ## **Solved Scanner CA Foundation Paper - 4A** **[63] The world economy suffered the longest deepest and most widespread depression of the 20th century during:** (a) 1934 (b) 1928 (c) 1930 (d) 1932 **(1 mark)** **Answer:** (c) 1930 The world economy suffered most widespread depression of the 20th century during 1930's. It started in US. ### **2021 - JULY** **[64] Variable that change before the real output change are called as:** (a) Leading indicators (b) Trade cycle (c) Lagging indicators (d) Business cycle **(1 mark)** **Answer:** (a) Leading Indicator A measurable economic factor that changes before the economy starts follows particular trend is known as leading factor. **[65] Which business cycle phases are known as Turning point?** (a) Trough and Depression (b) Peak and Trough (c) Expansion and contraction (d) Peak and Boom **(1 mark)** **Answer:** (b) Peak and troughs of business cycle are known as collectively Turning points. ### **[Chapter 5] Business Cycles** ## **4.391** **[66] Variables that change after real output changes are known as:** (a) Leading indicators (b) Cyclical indicators (c) Lagging indicators (d) Coincident indicators **(1 mark)** **Answer:** (c) Variables that changes after real output changes are known as lagging indicators. **[67] In which of the following phase of a business cycle, actual demand stagnates?** (a) Expansion (b) Peak (c) Contraction (d) Recovery **(1 mark)** **Answer:** (b) This is the end of expansion and it occur when economic growth has reached a point where it will be stabilize for short time "Actual demand stagnates." In peak of business cycle where actual demand stagnates. **[68] In a typical business cycle, in which phase supply exceeds demand:** (a) Expansion (b) Peak (c) Contraction (d) Recovery **(1 mark)** **Answer:** (c) In a Contraction of business cycle where "Supply exceeds demand". The consequences is mismatch between demand and supply. **[69] The rhythmic Fluctuations in aggregate economic activity that an economy experiences over a period of time is called:** (a) Business cycle (b) Recession (c) Contraction phase (d) Recovery **(1 mark)** ### **4.392** ## **Solved Scanner CA Foundation Paper - 4A** **Answer:** (a) The rhythmic fluctuations is aggregate economic activities that an economy experiences over a period of time are called "Business Cycle". **[70] Which phase of business cycle is characterised by increase in national output, employment, aggregate demand, capital and consumer expenditure sales, profits etc.?** (a) Depression (b) Contraction (c) Trough (d) Expansion **(1 mark)** **Answer:** (d) The expansion phase is characterised by increase in National output, employment, aggregate demand, sales, profit, rising stock prices. This states continue till there is full employment of resources and production is at maximum. **[71] Coincident economic indicators are also called as:** (a) Leading indicators (b) Headed indicators (c) Concurrent indicators (d) Capacity indicators **(1 mark)** **Answer:** (c) Coincident economic indicator also called concurrent indicators, coincide or occur simultaneously with the business cycle movement. **[72] Which of the following is not a features of business cycle?** (a) Business cycle are contagious and are international in character (b) Business cycle have uniform characteristics and causes (c) Business cycle have serious consequences on the well being of the society (d) Business cycle generally original in free market economics **(1 mark)** **Answer:** (b) Business cycle have uniform characteristics and cause. It is not a feature of Business Cycle. ### **[Chapter 5] Business Cycles** ## **4.393** Features of Business Cycle: * Business cycle occur periodically. * Business cycles have distinct phases expansion peak, contraction and trough. * Business cycle do not have uniform characteristics and causes. **[73] Internal cause of Business cycle is:** (a) Fluctuations in investment (b) Natural factors (c) Technology shocks (d) Population growth **(1 mark)** **Answer:** (a) Internal cause of Business Cycle are: (i) Fluctuations in Effective demand (ii) Fluctuations in Investment (iii) Variations in government spending (iv) Macro Policies (v) Money Supply **[74] Excess capacity in capital industries leads to** (a) Peak (b) Trough (c) Expansion (d) Recovery **(1 mark)** **Answer:** (b) Excess capacity in capital industries leads to trough a typical feature of depression is the fall in the interest rate. With lower interest rate, the demand for holding liquid money (i.e. in cash) increases. Industries, especially capital and consumer durable goods industry, suffer from excess capacity. **[75] According to whom "Business Fluctuation are the outcome of some Psychological states of mind of business community":** (a) Marshall (b) A. C. Pigou (c) J. K. Hicks (d) Schumpeter **(1 mark)** ### **4.394** ## **Solved Scanner CA Foundation Paper - 4A** **Answer:** (b) According to Pigou, Modern business cycle activities are based on the anticipation of business community and are affected by waves of optimism or pessimism. Business fluctuation are the outcome of these psychological state of mind of businessmen.. ### **2021 - DECEMBER** **[76] _ is when economic activity is increasing?** (a) Peak (b) Depression (c) Expansion (d) Contraction. **(1 mark)** **Answer** (c) The economy is moving out of recession. Money is cheap to borrow, businesses build up inventories again and consumers start spending. GDP rises, per capita income grows, unemployment declines, and equity markets generally perform well. **[77] According to which economist, trade cycle is a purely monetary phenomenon** (a) Schumpeter (b) Pigou (c) Hawtrey (d) Marshall **(1 mark)** **Answer** (c) According to Hawtrey, trade cycle is a purely monetary phenomenon. Unplanned changes in the supply of money may cause business fluctuation in an