Which of the Following Illustrates How the Investment Accelerator Works

question 79

Multiple Choice

Which of the following illustrates how the investment accelerator works?

• A)An increase in government expenditures increases aggregate spending so that SnoozeBargain Co.decides to modernize its motels.
• B)An increase in government expenditures increases the interest rate so that SnoozeBargain Co.decides to modernize its motels.
• C)An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co.rises.
• D)An increase in government expenditures decreases the interest rate so that SnoozeBargain Co.decides to modernize its motels.

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Definitions:

Expected Price Level

The anticipated average level of prices in the economy for goods and services, often considered in the context of inflation expectations.

Aggregate Supply

The total supply of goods and services produced within an economy at a given overall price level in a given period.

Sticky-Price Theory

A theory proposing that prices of goods do not immediately adjust to changes in economic conditions, causing economic inefficiencies.

Aggregate Demand

The grand total of all demands for goods and services within an economic sphere, established at a certain collective price level during a fixed timeframe.