During recessions, investment spending usually decreases because:
A) the real interest rate falls.
B) lower profits mean more firms face financing constraints.
C) the purchase price of capital decreases.
D) corporate tax rates usually decrease.

Question

Quizplus · Accepted Answer

During recessions, firms experience lower profits, which makes it more difficult to secure financing for investment projects. As a result, many firms face financing constraints and are unable to invest as much as they would during periods of economic growth. The other options are not generally associated with decreases in investment spending during recessions.

During Recessions, Investment Spending Usually Decreases Because