Refer to the Following Figure When Answering the Following Questions

question 106

Multiple Choice

Refer to the following figure when answering the following questions.
Figure 11.1: Growth rates of real investment and consumption (Source: U.S. Bureau of Economic Analysis)
-Consider Figure 11.1. What explains the difference in the volatility of each series?

• A) Firms are predictable.
• B) differences in expectations across firms
• C) differences in expenditure shares
• D) Firms do not make investment decisions based on interest rates.
• E) Households consumption-smooth.

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Definitions:

Cash-Basis Accounting

An accounting method where revenues and expenses are recorded when cash is received or paid, as opposed to when they are incurred.

Depreciation

An accounting method of allocating the cost of a tangible asset over its useful life to account for declines in value over time.

Wages

Amounts paid to employees based on a rate per hour or on a piecework basis.

Rent Expense

An expense account detailing the cost incurred for the use of rental property or equipment.