Which of the following is NOT consistent with the idea that an economy's booms and busts can be self-fulfilling prophecies?
A)A boom is a good equilibrium, and a bust is a bad equilibrium.
B)When households spend a lot, firms tend to produce a lot.
C)An equilibrium occurs when workers underspend and firms overproduce.
D)If households believe firms will cut back on hiring, households cut back on spending.

Question

Quizplus · Accepted Answer

Choice C suggests an imbalance in the economy that would not be sustainable in the long run and therefore cannot perpetuate itself as a self-fulfilling prophecy. The other choices all suggest that actions and beliefs can lead to cyclical patterns of boom and bust.

Which of the Following Is NOT Consistent with the Idea