Where Does the Interest Rate Fit into the Accelerator Hypothesis

question 4

Multiple Choice

Where does the interest rate fit into the accelerator hypothesis of investment?

• A)It helps determine the error-learning parameter,j.
• B)It helps determine the ratio of desired capital to expected sales,v*.
• C)It helps determine the depreciation ratio of capital stock to replacement investment.
• D)Nowhere: the hypothesis says that investment is independent of the interest rate.

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Definitions:

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen, representing the cost of sacrificing the next best choice.

Oranges

A citrus fruit rich in vitamin C, grown in warm climates, and consumed either fresh or in juice form.

Peaches

Edible juicy fruits with fuzzy skins and a sweet taste, often grown in temperate regions.

Absolute Advantage

The skill of a person, business, or nation to generate a product or offer a service more affordably per unit than any other competitor.