CFA Level 1 | mwt2kn7 | Question Implications of Recessio...

Economics

Implications of Recession for Business Investment and Consumer Behavior

Very Hard Macroeconomics Business Cycles

During an economic downturn, businesses face a decline in sales and a tightening of credit conditions. As a result, firms often decrease production and lay off employees. This situation can be tied to various phases of the business cycle.

Which of the following statements accurately characterizes the implications of a recession for business investment and consumer behavior?

During a recession, businesses tend to increase investment in capital assets because they anticipate an imminent recovery.

Consumer spending typically decreases during a recession, leading to a reduction in business revenues and further contraction of investment.

Recessions have no effect on consumer behavior, as consumers maintain their spending patterns regardless of economic conditions.

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