Which of the following illustrates how the investment accelerator works?
A)An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants.
B)An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants.
C)An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases.
D)An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.

Question

Quizplus · Accepted Answer

An increase in government expenditures increases aggregate spending, which leads to an increase in the demand for goods and services. This, in turn, leads to an increase in investment, as businesses find it profitable to expand their operations to meet the increased demand.

Which of the Following Illustrates How the Investment Accelerator Works