The theory that explains business cycles by the dynamic interaction of consumption and investment demand is the ?
Correct answer: B. multiplier accelerator model
- A. sun spot theory
- B. multiplier accelerator model
- C. Solow theory
- D. New classical theory
Explanation
The multiplier-accelerator model combines the consumption multiplier with investment responses to changes in output, producing cyclical fluctuations. Solow theory explains long-run growth, not primarily demand-driven business cycles.
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