alleryPigou explained business fluctuations chiefly in terms of:
AUnplanned swings in the money supply
BWaves of business optimism and pessimism
CThe clustering of major innovations
DWeather-driven changes in farm output
Answer & Solution
Correct answer: B. Waves of business optimism and pessimism
1. The chapter attributes to Pigou the psychological view of cycles.
2. Business activity rests on anticipations and is swayed by waves of optimism or pessimism.
3. Optimism spurs investment and expansion; pessimism restricts it and brings contraction.
4. So the correct choice is the waves of optimism and pessimism.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 5 "Business Cycles", p.8_
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