In the coordination failure,the most likely explanation of business cycles are
A) money supply shocks.
B) government spending shocks.
C) total factor productivity shocks.
D) fluctuations between 'good' and 'bad' equilibria.
E) labour market shocks.

Question

Quizplus · Accepted Answer

Coordination failure refers to a situation where firms and households do not coordinate their expectations and actions, leading to fluctuations between multiple equilibria. Therefore, the most likely explanation for business cycles in coordination failure is fluctuations between 'good' and 'bad' equilibria. Money supply shocks (A) and government spending shocks (B) can cause short-term fluctuations in aggregate demand, but do not explain the recurring nature of business cycles. Total factor productivity (C) and labor market shocks (E) can lead to structural changes in the economy, but do not explain the coordination failure that characterizes business cycles.

In the Coordination Failure,the Most Likely Explanation of Business Cycles