According to Keynesian coordination failure theory, the primary causes of business cycles are
A) monetary factors.
B) technology shocks.
C) waves of self-fulfilling optimism and pessimism.
D) fiscal shocks.
E) shocks to aggregate demand.

Question

Quizplus · Accepted Answer

According to Keynesian coordination failure theory, waves of self-fulfilling optimism and pessimism can cause coordination failures in the economy, leading to business cycles. This occurs when individuals and firms base their decisions on expectations of what others will do, rather than on fundamental economic conditions. This can lead to periods of boom and bust as expectations shift. Monetary factors, technology shocks, fiscal shocks, and shocks to aggregate demand can also contribute to business cycles, but they are not the primary causes according to this theory.

According to Keynesian Coordination Failure Theory, the Primary Causes of Business