Which of the following illustrates how the investment accelerator works?
A) An increase in government expenditures increases aggregate spending so that Gas-n-Go decides to modernize its gas stations.
B) An increase in government expenditures increases the interest rate so that Gas-n-Go decides to modernize its gas stations.
C) An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Gas-n-Go rises.
D) An increase in government expenditures decreases the interest rate so that Gas-n-Go decides to modernize its gas stations.

Question

Quizplus · Accepted Answer

The investment accelerator effect occurs when increased government spending boosts aggregate demand, encouraging businesses to invest in capital improvements, like Gas-n-Go modernizing its gas stations.

Which of the Following Illustrates How the Investment Accelerator Works