In a typical business cycle, is consumption or investment more volatile? Explain why. "Each answer must...

In a typical business cycle, is consumption or investment more volatile? Explain why.

"Each answer must be about 1 - 2 paragraphs and use economic models/term to explain your answer."

Expert Solution

Answer - In the typical business cycle model , the investment is more volatile than consumption. This means that the investment changes quickly than the consumption.

Consumption is less volatile than the output and investment is more volatile than the output. This is because , due to the change in money supply or the flow of money , the interest rates in the economy change . This change in the interest rates leads to the change in the investment. However the impact of this change is lesser on the output. Not all of the output produced in consumed. Hence consumption is less volatile than investment

Rahul Sunny answered 2 years ago

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