One potential weakness of the coordination failure model as an explanation of business cycles is that
A) evidence supporting intertemporal substitution as an important determinant of labor supply is weak.
B) evidence supporting the existence of increasing returns at the aggregate level is weak.
C) it fails to explain several of the key business cycle regularities.
D) it requires that consumers not behave in a rational manner.

Question

Quizplus · Accepted Answer

The coordination failure model relies on increasing returns to scale to explain business cycles, but empirical evidence for increasing returns at the aggregate level is not strong.

One Potential Weakness of the Coordination Failure Model as an Explanation