PRC-3 · Chapter 15 · Question 22 of 44
While the Multiplier explains how Investment drives Consumption, the 'Accelerator Theory' focuses on the reverse. It states that:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) A rapid rise in consumer demand forces firms to aggressively increase Capital Investment to build new factories
Explanation
The accelerator principle states that an increase in the rate of consumption induces a disproportionately larger increase in capital investment to expand production capacity.
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