The theory of investment that links investment spending to stock prices is known as the
A) accelerator model.
B) neoclassical theory of investment.
C) multiplier model.
D) Q-theory of investment.

Question

Quizplus · Accepted Answer

The theory of investment that links investment spending to stock prices is known as the Q-theory of investment. This theory suggests that investment decisions are driven by the difference between the market value and replacement cost of capital goods. When the market value of capital goods exceeds their replacement cost, firms are incentivized to invest in new capital goods, which leads to an increase in investment spending. Stock prices are believed to reflect the market value of capital goods, and thus changes in stock prices can affect investment decisions.

The Theory of Investment That Links Investment Spending to Stock