Why is it necessary to understand fluctuations in investment if we want to understand the fluctuations in the business cycle?
What will be an ideal response?
Investment is not the largest component of aggregate demand but over the short run it can be volatile. Consumption and government purchases are fairly stable over the short run and net exports are too small to make much of an impact, so the short run changes in aggregate demand are often driven by changes in investment. In addition, investment is the most interest-sensitive component of aggregate demand, making it relatively responsive to monetary policy.
You might also like to view...
Economic growth is defined as equal to the increase in
A) real GDP. B) population. C) the price level. D) the inflation rate. E) employment.
If the government makes a good illegal and then imposes stiffer penalties on illegal drug buyers than on sellers, the price of the good ________ and the quantity ________
A) falls; increases B) rises; decreases C) falls; decreases D) does not change; decreases
The model of perfect competition is most likely to apply to a market where
a. it is difficult for existing firms to exit the market b. there are a few buyers, and they are uninformed about the degree of product standardization c. there are many existing sellers, but it is difficult for new sellers to enter the market d. one dominant seller must negotiate with one dominant buyer e. there are many sellers, and they produce a standardized product
During a recession, unemployment ________, tax revenue ________, and the budget deficit ________.
A. rises; falls; rises B. falls; rises; rises C. rises; rises; falls D. falls; falls; rises