The innovation theory, which holds that trade cycles arise from innovations introduced into the system from time to time, is credited in the chapter to:

1. The chapter discusses several theories of the trade cycle. 2. It states Schumpeter's innovation theory holds that cycles result from periodic innovations in the system. 3. So the correct choice is Schumpeter. 4. Hawtrey (monetary theory), Pigou (psychological theory), and Kaldor (cobweb theory) are ruled out. _Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 5 "Business Cycles", p.8_