Consumption and investment in recession.
Answer to Problem 1QQ
Option (c) is the correct answer.
Explanation of Solution
Option (c):
In a typical recession, consumption falls, and the investment also decreases at more than the proportionate rate. Recession is a period in which most of the
Option (a):
In a typical recession, consumption will not rise. The consumption and investment decrease during recession, and the investment falls at more than the proportionate rate. Thus, option (a) is incorrect.
Option (b):
In a typical recession, consumption will not rise. The consumption and investment decrease during recession, and the investment falls not less than but more than the proportionate rate. Thus, option (b) is incorrect.
Option (d):
In a typical recession, consumption will fall. However, the fall in investment is not less than the proportionate rate. Thus, option (d) is incorrect.
Recession: A recession is a significant decline in activity across the economy, lasting longer than a few months.
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