Macroeconomics 8th Edition by David Colander

Exercise 2

Wesley Mitchell, a founder of Institutional economics, said that to understand the business cycle, a distinction must be made between making goods and making money. All societies make goods. In the modern money economy, those who control the production and distribution of goods will only allow economic activity to occur if they can "make money." He used this line of reasoning to conclude that what drives the business cycle are business expectations; production, and thus increased employment today, will only be allowed if business expects to sell those goods at a profit tomorrow. Is his proposition reasonable? Explain. (Institutionalist)