Concept explainers
The basic cause of business cycle.
Explanation of Solution
The basic reason of business cycles according to the generally accepted theories is the changes in the amount of aggregate spending or aggregate demand. The aggregate spending includes the consumption, investment for business, government expenditure, and foreign transactions. The changes in any of these factors result in the business cycle. Consumption (C), investment (I), government expenditure (G) and foreign transactions (X-M), and
Real GDP: Real GDP refers to the market value of all the final goods and services produced in an economy during an accounting year, which is measured in the constant prices.
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