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Which component of aggregate demand does the chapter describe as the most volatile and a prime cause of business cycles?
AInvestment spending
BHousehold consumption
CGovernment transfer payments
DImport expenditure
Answer & Solution
Correct answer: A. Investment spending
1. Some economists hold that fluctuations in investment are the prime cause of cycles.
2. The chapter states investment spending is the most volatile component of aggregate demand.
3. So the correct choice is investment spending.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 5 "Business Cycles", p.7_
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