According to the accelerator theory of investment, a decrease in the expected future growth rate of real GDP will cause:

Question

Quizplus · Accepted Answer

According to the accelerator theory of investment, firms base their investment decisions on expected future demand for their products. Therefore, a decrease in expected future growth rate of real GDP will lead to a decrease in expected future demand, which in turn will cause firms to reduce their current investment spending. Hence, the correct answer is D, current investment spending to decrease.

According to the Accelerator Theory of Investment, a Decrease in the Expected