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Which of the following is classified in the chapter as an EXTERNAL (exogenous) cause of business cycles?
ANatural weather cycles affecting farm output
BFluctuations in aggregate effective demand
CUnplanned changes in the money supply
DSwings in business optimism and pessimism
Answer & Solution
Correct answer: A. Natural weather cycles affecting farm output
1. The chapter splits causes into internal (endogenous) and external (exogenous).
2. External causes include wars, post-war reconstruction, technology shocks, natural factors and population growth.
3. Natural weather cycles affect agricultural output, which destabilises farm incomes and then industrial demand.
4. They are listed under natural factors, an external cause, so that is the correct choice.
5. Fluctuations in aggregate effective demand are ruled out: this is an internal cause (Keynes).
6. Money-supply changes (Hawtrey) and psychological waves (Pigou) are also ruled out as internal causes.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 5 "Business Cycles", p.8_
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