What is the effect of pessimistic business expectations on investment?
Answer (1)
If businesses expect bad times ahead, they reduce investment. This is because they don’t want to risk spending money on expansion if they think people won’t be buying. For instance, if a restaurant owner hears news of an upcoming economic slowdown or higher fuel prices, they might delay plans to open a second branch.Business expectations are very sensitive; positive news boosts investment, while negative news causes companies to hold back. This affects employment too, because less investment means fewer jobs.
