Some economists believe that the business cycle causes

Question

fluctuations in the growth rate of total factor productivity.

A) True

B) False

Answer 1

A) True

Chatterjee (1999) proposed that fluctuations in the growth rate of total factor productivity explain the cyclical upward and downward trends in the economic activity. Productivity improves, for instance, as a result of increased effectiveness or the decreased prices of raw materials.

Therefore, Chatterjee (1999) introduced that cycles can sometimes be good for improving economic efficiency. On the contrary, business cycles can be disadvantageous to nations because a severe recession can discourage risky long-term investment and hence reduce prospective growth (Zarnowitz 1997, 23).

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