Refer to the following figure when answering
Figure 11.2: Growth Rates of Investment and GDP (Source: U.S. Bureau of Economic Analysis)
-Consider Figure 11.2. How does the investment function describe why investment is more volatile than the real GDP?
A) Firms are unpredictable.
B) Investment does not include household residential expenditures.
C) Inventories do not adjust to changes in business cycles.
D) Firms do not have very good information.
E) The marginal product of capital is included in the investment function.

Question

Refer to the following figure when answering  
Figure 11.2: Growth Rates of Investment and GDP  (Source: U.S. Bureau of Economic Analysis)
-Consider Figure 11.2. How does the investment function describe why investment is more volatile than the real GDP?
A) Firms are unpredictable. 
B) Investment does not include household residential expenditures. 
C) Inventories do not adjust to changes in business cycles. 
D) Firms do not have very good information. 
E) The marginal product of capital is included in the investment function.

Quizplus · Accepted Answer

The marginal product of capital is included in the investment function. This means that investment is more volatile than real GDP because the marginal product of capital is more volatile than real GDP.

Refer to the Following Figure When Answering