Which of the following is the most likely source of shocks that can cause business cycles?

• A. Constant interest rates
• B. Stable government spending
• C. Changes in consumer and business expectations
• D. Uniform technological progress

Answer: (C)

Verified step by step guidance

1. Understand that business cycles are fluctuations in economic activity characterized by periods of expansion and contraction.
2. Recognize that shocks causing business cycles are unexpected events that disrupt the normal flow of economic activity.
3. Evaluate each option by considering whether it introduces variability or uncertainty into the economy:
4. - Constant interest rates imply stability, so they are unlikely to cause shocks.
5. - Stable government spending also suggests predictability, reducing the chance of shocks.
6. - Uniform technological progress is steady and predictable, so it does not cause sudden shocks.
7. - Changes in consumer and business expectations can lead to sudden shifts in spending and investment, making them a likely source of shocks that cause business cycles.