Of the three major components of investment,
A) nonresidential fixed investment dominates, but inventory volatility gives it a primary role in driving the business cycle.
B) residential fixed investment dominates and therefore plays a primary role in driving the business cycle.
C) inventory holdings dominate, but the volatility of nonresidential fixed investment is a primary source of business cycle fluctuation in GDP.
D) only residential fixed investment depends on real GDP and therefore has anything to do with the business cycle.
E) none of the above.

Question

Quizplus · Accepted Answer

Nonresidential fixed investment is a major component of investment, but the volatility of inventory levels often plays a crucial role in driving the business cycle fluctuations. This is because changes in inventory levels can reflect shifts in business expectations and consumer demand, leading to economic expansions or contractions.

Of the Three Major Components of Investment