If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then
A)investment spending will fall.
B)investment spending will rise.
C)investment spending will remain unaffected.
D)investment spending will rise and then fall.
E)investment spending growth smoothly.

Question

Quizplus · Accepted Answer

When firms are pessimistic and believe that future profits will fall and remain weak for the next few years, they are less likely to invest in new projects and expansion. This is because it may not be profitable and the risk may not be worth it. Therefore, investment spending will fall.

If Firms Are More Pessimistic and Believe That Future Profits