Identify the correct statement.
A)During a recession,investment decreases while consumption increases.
B)During a recession,investment increases while consumption decreases.
C)During a recession,investment is constant while consumption increases.
D)Annual variations in investment are larger than annual variations in consumption.
E)Annual variations in investment are smaller than annual variations in consumption.

Question

Quizplus · Accepted Answer

During economic downturns or recessions, investment levels typically decrease due to uncertainty and reduced earnings expectations, while consumption may also decrease as individuals and businesses cut back on spending. However, the key point here is that investment tends to be more volatile than consumption, meaning it can have larger swings or variations annually. This is because investment decisions are often directly influenced by economic forecasts and business expectations, which can change significantly from year to year, whereas consumption is driven by more stable factors like population growth and personal income levels.

Identify the Correct Statement