PRC-3 · Chapter 15 · Question 10 of 44
While the Multiplier shows how Investment drives Consumption, the 'Accelerator Theory' focuses on the reverse relationship. It states that:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) A rise in consumer demand forces firms to aggressively increase Capital Investment to build new factories
Explanation
The accelerator principle posits that if consumer demand grows rapidly, firms hit capacity limits and must 'accelerate' their capital investment to build new production facilities to meet the demand.
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