The most volatile component of GDP over the business cycle is
A)consumption.
B)net exports.
C)investment.
D)government purchases.

Question

Quizplus · Accepted Answer

Investment is the most volatile component of GDP over the business cycle. This is because investment spending is directly linked to changes in business confidence and expectations about future economic growth. During a recession, businesses may become pessimistic about the future and reduce their investment spending, causing a large decline in GDP. On the other hand, during an economic boom, businesses may become overly optimistic and increase their investment spending beyond what is sustainable, leading to an eventual economic downturn. Consumption, net exports, and government purchases are also affected by the business cycle, but not to the same extent as investment.

The Most Volatile Component of GDP Over the Business Cycle