Economics - Economics Section 2

6. Which of the following statements with respect to the boom phase of the economic cycle are most likely correct?
1. Demand for factors of production may exceed supply and hence the economy may experience shortages.
2. Companies might over-invest in production capacity and this could possibly trigger the next recession

  • Option : C
  • Explanation : Both statements are correct. The economy may face shortages because the demand for factors of production exceeds the supply. Furthermore, companies might overinvest in production capacity which can result in idling machines and workers if the economic growth slows down.
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7. Which of the following is most likely to have the most pronounced cyclical behavior?

  • Option : A
  • Explanation : Durable goods have a long useful life in comparison to non-durables and services. Therefore, consumers tend to delay purchase when economic outlook is not favorable.
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