The Keynesian explanation of the business cycle is based on
A) the inability of government policy- makers to predict the future course of the economy.
B) shifts in monetary policy undertaken by the Federal Reserve.
C) unstable inflationary expectations.
D) fluctuations in business confidence.

Question

Quizplus · Accepted Answer

The Keynesian explanation of the business cycle is based on fluctuations in business confidence. According to Keynes, the business cycle is driven by changes in investment spending, which in turn depend on the level of business confidence or expectations about the future profitability of investments. When business confidence is high, firms invest more, leading to an expansionary phase of the business cycle; when confidence is low, investment spending falls, leading to a contractionary phase of the cycle.

The Keynesian Explanation of the Business Cycle Is Based on