Question

3. Over the business cycle, investment spending ______ consumption spending. A) is inversely correlated with
B) is more volatile than
C) has about the same volatility as
D) is less volatile than

4. Most economists believe that prices are:
A) flexible in the short run but many are sticky in the long run. B) flexible in the long run but many are sticky in the short run. C) sticky in both the short and long runs.
D) flexible in both the short and long runs.

Answer 1

Answer

Option

B) is more volatile than

The investments have perfect substitute like saving bank accounts where investments will get some returns and if that interest rate increases then the investment switched to it

but consumption does not have an option for certain goods so the change in prices will not change the consumption much.

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Q4

Answer

Option

B) flexible in the long run but many are sticky in the short run.

the prices are sticky in the short run as the change in the input prices may not have much effect in the short run on the market so the prices depend on the aggregate demand in the short run and flexible in the long run as in long run.