How do macroeconomic shocks relate to the business cycle?

A. The business cycle is the underlying cause of macroeconomic shocks.
B. There is no correlation between macroeconomic shocks and the business cycle.
C. The business cycle and macroeconomic shocks are inversely related.
D. The business cycle results from the response of households and firms to macroeconomic shocks.

Option (b), Macroeconomic shocks play a critical role in shaping the business cycle, with households and firms responding to these shocks, leading to economic expansion or contraction.

Explanation:

Macroeconomic shocks are significant, unexpected events that can impact an economy's performance, and they are closely related to the business cycle. Option d is the correct choice: The business cycle results from the response of households and firms to macroeconomic shocks.

These macroeconomic shocks such as financial crises, supply chain disruptions, or geopolitical conflicts can induce changes in economic indicators and can either contribute to expansion or lead to contraction within the business cycle. This interaction shows that individual business decisions reflecting microeconomic factors are influenced by the overall macroeconomic health, leading to the cyclical pattern of growth and recession that characterizes the business cycle.