Business cycles are linked to the interaction between the
A) foreign exchange rate and the balance of payments account.
B) aggregate demand and aggregate supply curves.
C) demand and supply curves for a particular good.
D) substitution and the wealth effect.
E) long-run aggregate supply curve and the aggregate resource curve.

Question

Quizplus · Accepted Answer

Business cycles involve fluctuations in the overall level of economic activity and are closely tied to the interaction between aggregate demand and aggregate supply. As demand rises, firms increase production, leading to job creation and economic growth. However, if demand becomes too strong and outstrips supply, prices may rise, leading to inflation. Conversely, if demand decreases, firms may reduce production, leading to layoffs and economic contraction. The interplay between these two curves is central to explaining the ebb and flow of economic activity over time.

Business Cycles Are Linked to the Interaction Between the