Which of the Following Illustrates How the Investment Accelerator Works

question 32

Multiple Choice

Which of the following illustrates how the investment accelerator works?

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

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Definitions:

Free Cash Flow

The amount of cash generated by a business after accounting for operational expenses and capital expenditures, available for shareholders, reinvestment, or debt repayment.

Net Cash Provided

The surplus amount of cash generated by an entity's operations after accounting for all outgoing and incoming cash flows.

Comparative Balance Sheet

A financial statement that presents the assets, liabilities, and equity of a company at two or more different dates for the purpose of comparison.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since it was placed in service, reducing its book value.