The accelerator assumes ?
Correct answer: C. There is a constant relationship between net investment and the rate of change of output
- A. The marginal propensity to consume is constant
- B. The economy is at full employment
- C. There is a constant relationship between net investment and the rate of change of output
- D. The multiplier is constant
Explanation
The accelerator principle links net investment to changes in output, so a constant relationship between the two is its central assumption. It explains why faster output growth induces more investment.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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