The multiplier-accelerator model
A) suggests that a downturn in real GDP will lead to a sharp fall in investment, which leads to further reductions in GDP through the multiplier.
B) links investment spending to stock prices.
C) emphasizes that current investment spending depends negatively on the expected future growth of GDP.
D) emphasizes the role of real interest rates and taxes.

Question

Quizplus · Accepted Answer

The multiplier-accelerator model suggests that a downturn in real GDP will lead to a sharp fall in investment, which leads to further reductions in GDP through the multiplier. The model emphasizes the importance of understanding the relationship between investment and changes in GDP.

The Multiplier-Accelerator Model