Which Statement Best Illustrates How the Investment Accelerator Works

question 90

Multiple Choice

Which statement best illustrates how the investment accelerator works?

• A) An increase in government expenditures increases the interest rate so that the Sleepwell Hotel chain decides to build fewer new hotels.
• B) An increase in government expenditures increases aggregate spending so that the Sleepwell Hotel chain finds it profitable to build more new hotels.
• C) An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by the Sleepwell Hotel chain rises.
• D) An increase in government expenditures decreases the interest rate so that the Sleepwell Hotel chain decides to build more new hotels.

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Definitions:

Complements

Pairs of goods for which a rise in the price of one good leads to a decrease in the demand for the other good.

Cross-Price Elasticity

A measure of how the quantity demanded of one good responds to a change in price of another good, indicating whether the goods are substitutes or complements.

Demand

The total quantity of a good or service that consumers are willing and able to purchase at a given price level.

Gala Apples

A variety of apple that is known for its sweet flavor and crisp texture, often used in cooking and baking.