Investment is important to the short run health of the economy because it
A) is the largest component of GDP
B) is countercyclical, and thus stabilizing
C) is highly volatile, and thus contributes largely to business cycles
D) can be easily controlled by government
E) is highly predictable, and thus useful for forecasting

Question

Quizplus · Accepted Answer

Investment is considered important to the short-run health of the economy primarily because it is highly volatile. This volatility means that investment levels can change significantly over short periods, contributing largely to the fluctuations observed in business cycles. Investments can rapidly increase during economic booms, leading to expansion, and decrease just as quickly during downturns, exacerbating recessions. This characteristic of investment makes it a key factor in the short-term economic fluctuations that economies experience.

Investment Is Important to the Short Run Health of the Economy