For a given economic shock,more irreversible investments in an economy will:
A) moderate the effect of the shock on the economy.
B) amplify the effect of the shock on the economy.
C) make the transmission mechanism for the shock longer.
D) make the transmission mechanism for the shock shorter.

Question

Quizplus · Accepted Answer

Irreversible investments are those that cannot be easily reversed or undone. Therefore, in the face of an economic shock, these investments may amplify the effects of the shock on the economy. This is because firms and individuals have already committed resources to these investments and may not be able to easily adapt or switch to other investments or activities. As a result, the shock may have a more pronounced impact on the economy.

For a Given Economic Shock,more Irreversible Investments in an Economy