Which statement best illustrates how the investment accelerator works for the Sleepwell Hotel chain?
A) an increase in government expenditures increases the interest rate so that the chain decides to build fewer new hotels
B) an increase in government expenditures increases aggregate spending so that the chain finds it profitable to build more new hotels
C) an increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by the chain rises
D) an increase in government expenditures decreases the interest rate so that the chain decides to build more new hotels

Question

Quizplus · Accepted Answer

The investment accelerator works on the principle that an increase in aggregate spending leads to an increase in the demand for capital goods, which includes construction of new hotels. Therefore, an increase in government expenditures, which increases aggregate spending, makes it profitable for the Sleepwell Hotel chain to build more new hotels.

Which Statement Best Illustrates How the Investment Accelerator Works for the Sleepwell