The tendency for investment to increase when aggregate output increases is the result of the ________ effect.
A) accelerator
B) multiplier
C) substitution
D) income

Question

Quizplus · Accepted Answer

The accelerator effect is the tendency for investment to increase when aggregate output increases, as firms invest in new capital goods to produce more output. This is due to the fact that as demand for output increases, firms need to invest in new capital to increase their production capacity and meet the higher demand.

The Tendency for Investment to Increase When Aggregate Output Increases