Uncertainty tends to amplify business cycles because:
A) many investments are irreversible with large sunk costs;thus investors decrease investment during bad times and wait until they are more certain about the future direction of the economy.
B) fewer people tend to go to college during recessions because of the uncertainty in the job market and thus lower education leads to lower productivity.
C) investment tends to correlate with prices and therefore both prices and investment tend to rise during booms and decrease during recessions.
D) resource providers have less demand for their materials during recessions and thus less certain sales expectations.

Question

Quizplus · Accepted Answer

Uncertainty creates hesitation among investors, who become less willing to make irreversible investments during recessions when there is increased uncertainty about future economic conditions. As a result, amplifying the business cycle.

Uncertainty Tends to Amplify Business Cycles Because