The theory of investment that emphasizes the role of expected growth in real GDP on investment spending is known as
A) real business cycle theory.
B) the theory of animal spirits.
C) the accelerator theory.
D) the multiplier theory.

Question

Quizplus · Accepted Answer

The theory that emphasizes the role of expected growth in real GDP on investment spending is known as the accelerator theory. This theory states that when firms expect an increase in demand for their output, they will invest in more capital to increase production to meet that demand. The rate at which investment spending changes in response to changes in expected GDP growth is known as the accelerator.

The Theory of Investment That Emphasizes the Role of Expected