Question

Identify the correct statement   a- during a recession the investment decreases while consumption increases b- during...

Identify the correct statement  

a- during a recession the investment decreases while consumption increases

b- during a recession the investment increases while consumption decreases

c- during a recession investment is constant while consumption increases

d annual variations in investment are larger than annual variations in consumptions

e annual variations in investment are smaller than annual variations in consumption

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Answer #1

Option D

  • Investments and the consumption level vary in accordance with the Economy and with the changes in disposable income.
  • Both the investment and consumption are positively correlated to disposable income in the Economy.
  • When the income increases, the desire for Investments increase and the propensity to consume also increases.
  • But it is said that the invesInvest vary at a greater speed than the consumption in a country at any given year.
  • Hence the annual variations in Investment are said to be larger than the annual variations in consumptions.
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