One reason that investment spending tends to decline during recessions is that
A)interest rates tend to rise, reducing the expected future profitability of investment projects undertaken with borrowed funds.
B)many firms experience a decline in internal funds.
C)government spending tends to rise, which crowds out investment spending.
D)many firms experience an increase in taxes, reducing the expected future profitability of investment projects.

Question

Quizplus · Accepted Answer

During recessions, firms often see a decrease in their revenues and profits, which reduces the amount of internal funds available for investment. This reduction in internal financing can lead to a decline in investment spending, as companies may not have sufficient resources to fund new projects or may be more cautious about undertaking new investments in an uncertain economic environment.

One Reason That Investment Spending Tends to Decline During Recessions