When there is an increase in government expenditures,which of the following raises investment spending?
A)the investment accelerator and crowding out
B)the investment accelerator but not crowding out
C)crowding out but not the investment accelerator
D)neither the investment accelerator or crowding out

Question

Quizplus · Accepted Answer

The investment accelerator theory suggests that an increase in government spending will stimulate investment spending by creating a greater demand for goods and services, leading to increased profits and encouraging firms to invest in new projects. Crowding out, on the other hand, suggests that an increase in government spending will lead to higher interest rates and therefore, make it more expensive for firms to borrow and invest. However, since the question asks for which of the following raises investment spending, the correct answer should be the investment accelerator theory, which is option B.

When There Is an Increase in Government Expenditures,which of the Following