One potential weakness of the coordination failure model as an explanation of business cycles is that
A) government policy is unpredictable.
B) consumer behaviour is rational and predictable.
C) that underlying shocks that cause business cycles are expectations that are essentially unobservable.
D) money supply shocks are predictable.
E) there are fluctuations between "good" and "bad" equilibria.

Question

Quizplus · Accepted Answer

The coordination failure model suggests that business cycles occur due to a failure of agents to coordinate their behavior, resulting in inefficient outcomes. However, the underlying shocks that cause these failures are often expectations that are essentially unobservable, making it difficult to accurately predict and prevent business cycles.

One Potential Weakness of the Coordination Failure Model as an Explanation