PRC-3 · Chapter 15 · Question 42 of 44
The 'Accelerator Theory' differs from the Multiplier by focusing on capital investment behavior. It explicitly states that:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Net investment is positive only if consumer output is rising at an increasing rate
Explanation
The accelerator principle argues that firms are only induced to undertake massive new capital investment (like building factories) when they see an accelerating growth in consumer demand.
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