Explain why consumption is less volatile than investment
What will be an ideal response?
At most, we would observe a one-for-one relationship between output and consumption. This is not the case with investment. When Y increases and is viewed as permanent by firms, they may increase investment to maintain a given capital-sales ratio. If this ratio is, say, 2, an increase in sales and output of 100 would require that I increase by 200. So, I will change more than C.
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Lin is maximizing total utility while consuming food and clothing. Her marginal utilities of food and clothing are 50 utils and 25 utils, respectively. If clothing is priced at $10 per unit, the price of a unit of food
a. must be rising b. must be falling c. must equal $10 as well d. must equal $20 e. cannot be determined without additional information.
The U.S. Department of Agriculture and Ernst Engel have confirmed, separately, that there is an inverse relationship between income changes and food consumption
Indicate whether the statement is true or false