21. How do fears of future economic problems affect GDP?
A. Businesses will invest more money in the short term to ensure higher profits in the future; GDP will be pushed up.
B. Consumers will spend more money in the short term to prevent future economic problems; GDP will be pushed up.
C. Government will spend less and save money for a future economic contraction; GDP will be reduced
D. Consumers will spend less and save money in case future economic problems affect them; GDP will be reduced
To answer this question, we need to understand the relationship between fears of future economic problems and the components of GDP (Gross Domestic Product), which is a measure of a country's economic activity. GDP is comprised of four main components: consumption, investment, government spending, and net exports.
Option A states that businesses will invest more money in the short term to ensure higher profits in the future, thus pushing up GDP. While this may be the case in certain situations, fears of future economic problems usually lead to decreased business confidence and a reluctance to make long-term investments. Therefore, option A is not the correct answer.
Option B suggests that consumers will spend more money in the short term to prevent future economic problems, which will push up GDP. While this does increase consumption expenditure, fears of economic problems typically lead to decreased consumer confidence and a reduction in spending habits. Therefore, option B is not the correct answer.
Option C states that the government will spend less and save money in case of a future economic contraction, leading to a reduction in GDP. This is usually a common response to fear of future economic problems, as governments tend to adopt austerity measures and cut spending to mitigate potential risks. Therefore, option C is the correct answer.
Option D suggests that consumers will spend less and save money in case future economic problems affect them, leading to a reduced GDP. This is accurate because when people fear an economic downturn, they tend to be more cautious with their spending and increase their savings. As a result, consumption expenditure decreases, which negatively impacts GDP. Therefore, option D is also correct.
In conclusion, both options C and D accurately describe how fears of future economic problems can affect GDP.