According to the multiplier- accelerator model, a downturn in real GDP leads to an even sharper fall in investment.

Question

Quizplus · Accepted Answer

According to the multiplier-accelerator model, a decrease in real GDP leads to a decrease in investment due to the multiplier effect (the decrease in consumer demand leads to a decrease in business profits, which leads to a decrease in investment) and the accelerator effect (the decrease in investment leads to a decrease in demand for capital goods, which leads to a decrease in output). Therefore, a downturn in real GDP leads to an even sharper fall in investment.

According to the Multiplier- Accelerator Model, a Downturn in Real