Recall the Application about energy price uncertainty and its impact on investment spending and GDP growth to answer the following question(s). Increases in oil prices can lead to a drop in GDP. However, uncertainty about oil prices is also an important factor. The volatility of oil prices creates uncertainty for firms making investment decisions, and adversely affects GDP growth.
-According to this Application, if the volatility of energy prices led to expectations of declining real GDP, investment spending at that time would tend to decrease. This relationship between the decrease in investment spending and the expected decline in real GDP would be expressed by the

Question

Quizplus · Accepted Answer

The relationship between the expected decline in real GDP and the decrease in investment spending is consistent with the accelerator theory. This theory suggests that changes in expected future output affect investment spending in the same direction, meaning that if expected future output declines, investment spending will decrease as well.

Recall the Application About Energy Price Uncertainty and Its Impact