Economics · Theories of Innovation and Cycles
A rapid technological revolution in Artificial Intelligence renders 40% of traditional textile machinery obsolete, escalating non-performing asset (NPA) risks for older mills while triggering high demand for AI-integration loans and tech subsidies. According to Schumpeter's Innovation Theory, what phase of the cycle is the traditional textile industry entering, and how will the liquidity preference of old mill owners shift?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The industry is in 'Recovery'; mill owners will completely stop holding cash reserves.
- 2The industry is in a 'Depression'; the benchmark interest rate will immediately drop to zero.
- 3The industry is entering a 'Boom' phase; old owners will move all liquid cash into long-term bonds.
- 4The industry is entering a 'Recession' phase driven by creative destruction; old owners will have an increased precautionary demand for money.✓
Correct answer
The industry is entering a 'Recession' phase driven by creative destruction; old owners will have an increased precautionary demand for money.
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