Uncertainty Tends to Amplify Business Cycles Because

question 170

Multiple Choice

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.

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Definitions:

Probable Loss

An estimated financial loss from future events that are considered likely to occur based on current evidence or events.

Economic Sacrifice

A concept referring to the cost or loss associated with making a particular decision or taking an action.

Disclosure Note

A note included in financial statements that provides additional information relevant to an organization's financial position.

Working Capital

Working capital represents the disparity between an organization's current assets and current liabilities, showcasing its operational efficiency and short-term financial stability.