If firms receive an economic forecast predicting future decreases in the growth of real GDP, they are likely to respond by
A) decreasing their level of investment spending to decrease future production capacity.
B) increasing their level of investment spending to increase current production capacity.
C) increasing their level of investment spending to increase future production capacity.
D) decreasing their level of investment spending to decrease current production capacity.

Question

Quizplus · Accepted Answer

When firms anticipate a decrease in the growth of real GDP, they expect lower future demand for their products. To avoid overcapacity and unnecessary costs, they are likely to reduce their investment spending, aiming to decrease future production capacity rather than current capacity, which is already in place. This is a precautionary measure to align their production capabilities with expected lower demand.

If Firms Receive an Economic Forecast Predicting Future Decreases in the Growth