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At the peak of the business cycle, why do input prices tend to rise sharply?
AGovernments impose new input subsidies
BInputs grow scarce relative to their demand
CFirms suddenly cut all production output
DConsumers stop buying durable goods entirely
Answer & Solution
Correct answer: B. Inputs grow scarce relative to their demand
1. The chapter explains that in the later stages of expansion inputs become difficult to find.
2. They are short of their demand, so input prices increase.
3. This points to inputs growing scarce relative to demand.
4. The "firms suddenly cut output" option is ruled out: at the peak output is at its highest, not suddenly cut.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 5 "Business Cycles", p.2_
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