Question

What are the causes of a business cycle according to interventionists approach?

Answer 1

Causes of business cycle. The business or trade cycle relates to the volatility of economic growth, and the different periods the economy goes through (e.g. boom and bust), There are many different factors that cause the economic cycle – such as interest rates, confidence, the credit cycle and the multiplier effect.

Answer 2

The forces that result in the demand and supply in the economy because of the flow of income or capital. It is dependent on the expectations of what will take place in the future are the main causes of the business cycle.

Explanation:

• The business cycle goes through the four important phases of expansion, peak, contraction, and trough.  

• The peak phase is when the demand goes much above the supply and the business and investors compete with each other in the markets.  

• The expansion phase is when there is an increase in consumer income and they prefer to purchase which leads to an increase in demand.  

• The contraction phase moves into a period of recession that results in high rates of interest and financial crisis.  

• The trough phase is a period before the economy can enter into the expansion phase.  

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