In the accelerator theory the

Question

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According to the accelerator theory, net investment (i.e. the increase in capital stock) is directly proportional to the desired capital-output ratio. This means that as the desired capital-output ratio increases, firms will invest more in capital goods to achieve that ratio, leading to larger net investment. Conversely, if the desired capital-output ratio is small, firms may not see the need to invest in new capital goods and may opt for replacement investment instead. Therefore, answer options A and B are incorrect, and option D is the opposite of what the theory suggests.

In the Accelerator Theory the