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.
Want to see more full solutions like this?
Chapter 10 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
- Only typed answerarrow_forwardThe growth in real investment spending A. follows an erratic upward trend that is unrelated to the timing of recessions. B. declines significantly during recessions, and is subject to larger changes than is real consumption. C. trends smoothly upwards and downwards at regular intervals. D. follows a smooth, upward trend, interrupted only infrequently by brief recessions.arrow_forwardInvestment spending expansion O Declines; increases O Declines; declines Increases; increases O Increases; decline during an recession and during anarrow_forward
- Compare and contrast the effect of expansion and recession on selected variables like output and employment.arrow_forwardCan you please tell me the correct answer please?arrow_forwardInvestment is a larger portion of GDP than consumption, but is substantially less volatile Investment rises OA. sharply during recessions and falls sharply during booms OB. slowly during booms and falls slowly during recessions C. sharply during booms and falls sharply during recessions D. sharply with exports and falls sharply with importsarrow_forward
- The most likely source of an increase in investment is a. Interest rates that are lower b. Expected increases in national income c. The marginal propensity to consume is decreasing d.arrow_forwardA recession will occur if an economy’s actual GDP ____ its potential GDP. a. rises above b. equals c. grows faster than d. falls belowarrow_forwardWhich of following statements explains why the consumption of all 'weak-willed' households tends to closely track their income? Select one: a. Households suffering from 'weakness of will' try to live beyond their means. b. Households suffering from 'weakness of will' are unlikely to have accumulated savings. c. Households suffering from weakness of will are unlikely to make the effort to find alternative income and employment in the face of a negative shock. d. Weak-willed households tend to borrow more to sustain consumption if their income fallsarrow_forward
- 10. T/F/U. Fear of a recession causes a decrease in investment spending—I— which in turn impacts v. Draw a graph consistent with your answer.arrow_forwardOne of the following cannot be considered as a factor that affect consumption Select one: a. Price expectations b. None of the options are correct c. Wealth d. Interest ratesarrow_forward11arrow_forward
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning