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

Question

Quizplus · Accepted Answer

The investment accelerator states that an increase in aggregate spending will lead to an increase in investment spending. In this case, an increase in government expenditures will lead to an increase in aggregate spending, which will lead to SnoozeBargain Co. deciding to modernize its motels.

Which of the Following Illustrates How the Investment Accelerator Works