Final answer:
In a typical recession, consumption declines as people have lower incomes and spend less, while investment also decreases but in a more volatile manner compared to consumption due to the heightened sensitivity of investment decisions to economic conditions.
Step-by-step explanation:
Consider how consumption and domestic investment expenditure behave during a recession. Complete the following statements:
a) In a typical recession, consumption declines because as incomes fall, consumers tend to buy fewer goods, including imports.
b) Investment moves in the same direction as consumption but proportionately more volatile.
During a recession, individuals have less income and, therefore, tend to spend less, which causes a reduction in consumption. The uncertainty and decreased demand also lead to a decrease in domestic investment as businesses are less willing to invest in new projects due to lower expected returns. The impact of a recession on investment is usually more dramatically felt than in consumption since investment decisions are more sensitive to economic conditions.