Suppose that managers forecasted a large decline in expected sales and profits and so their confidence plummets. According to the , this forecast might start a business cycle.

Question

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The Keynesian cycle theory suggests that changes in business confidence can cause changes in aggregate demand, which then affect the level of economic activity and employment, ultimately resulting in business cycles. Therefore, a decline in expected sales and profits and a subsequent drop in confidence could trigger a downturn in the economy.

Suppose That Managers Forecasted a Large Decline in Expected Sales