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If political instability increases what may be the general effect on investors?

Answer and explanation

Correct answer: They may become more cautious

The answer is option A, investors may become more cautious. Political instability can create uncertainty about laws, taxes, licences, public spending, and the safety of business operations. Investors therefore may delay a project, study it more carefully, demand a higher return, or invest less. Option A is correct because caution is a common possible response; it is not claimed that every investor behaves identically. Option B, stopping making rules, is not a normal investor response and confuses investors with governments. Option C, buying all goods free, is unrelated and impossible as a general effect. Option D, changing the weather, has no connection with investment decisions. The correct reasoning is instability → uncertainty → lower confidence or greater caution. Memory cue: when political risk rises, investors usually examine risk more carefully before committing money.

Related tags

Business-EnvironmentPolitical-EnvironmentClass-12Easy

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