Questions: Of Macroecon 10019 Nathan Lock for Exam 2 Question 4 of 23 This quiz: 40 point(s) possibl This question: 1 point(s) pos If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then A. investment spending will rise and then fall. B. investment spending will fall. C. investment spending will remain unaffected. D. investment spending will rise.

The answer is B. investment spending will fall.

This option suggests a temporary increase in investment spending before a decline. However, if firms are pessimistic about future profits, they are unlikely to increase investment initially, as they anticipate lower returns on their investments.

When firms are pessimistic about future profits, they tend to reduce investment spending. This is because they expect lower returns on their investments and may prefer to conserve resources or redirect them to more secure or liquid assets. This aligns with the general economic theory that investment is closely tied to expected future profitability.

This option implies that firms' pessimism about future profits does not influence their investment decisions. However, investment decisions are typically sensitive to expectations about future profitability, making this option unlikely.

This option suggests that firms will increase investment despite expecting lower future profits. This is counterintuitive, as firms usually invest more when they anticipate higher future profits, not lower.