Refer to the following figure when answering the following question.
Figure 11.2: Growth Rates of Investment and GDP (Source: U.S. Bureau of Economic Analysis)
-Consider Figure 11.2. How does the investment function describe why investment is more volatile than the GDP?
A) Firms are unpredictable.
B) Investment does not include household residential expenditures.
C) Inventories do not adjust to changes in business cycles.
D) Firms do not have very good information.
E) The marginal product of capital is included in the investment function.

Question

Refer to the following figure when answering the following question.
Figure 11.2: Growth Rates of Investment and GDP  (Source: U.S. Bureau of Economic Analysis)
-Consider Figure 11.2. How does the investment function describe why investment is more volatile than the GDP?
A) Firms are unpredictable. 
B) Investment does not include household residential expenditures. 
C) Inventories do not adjust to changes in business cycles. 
D) Firms do not have very good information. 
E) The marginal product of capital is included in the investment function.

Quizplus · Accepted Answer

The marginal product of capital is included in the investment function. This means that investment is more volatile than GDP because the marginal product of capital can change quickly in response to changes in the economy.

Refer to the Following Figure When Answering the Following Question