A positive real shock will increase real GDP growth more if there are more irreversible investments.

Question

Quizplus · Accepted Answer

Irreversible investments refer to investments in capital goods that cannot be easily undone or reversed. These include investments in machinery, buildings, or infrastructure. When a positive real shock occurs, it typically leads to an increase in demand for goods and services, which in turn leads to an increase in investment. If there are more irreversible investments in the economy, then the increase in investment will lead to a larger increase in real GDP growth, since these investments are more likely to be sustained over the long run. This means that the economy will be better positioned to take advantage of the positive shock and benefit from the increased demand for goods and services. In contrast, if there are fewer irreversible investments, then the increase in investment may be more temporary and may not have as large of an impact on real GDP growth.

A Positive Real Shock Will Increase Real GDP Growth More