Suppose That the Desired Capital Stock Is Always Equal to Three

question 18

Multiple Choice

Suppose that the desired capital stock is always equal to three times total output for any year. In that case, the accelerator principle implies that investment should always

• A) equal some constant multiple greater than 3 times the annual change in GDP to accommodate depreciation.
• B) be precisely equal to three times the annual change in GDP regardless of the rate of depreciation.
• C) equal some constant multiple less than three times the annual change in GDP to accommodate depreciation.
• D) be proportional to the annual change in GDP, but the information provided is insufficient to compute the multiple exactly.
• E) none of the above.