Extract E (lines 8–11) states: ‘Following a prolonged period of stagnation, a sharp rise in consumer confidence has led to an unexpected surge in demand for durable goods. With factory capacity utilization now exceeding 92%, firms are rushing to install new production lines. Under the accelerator theory, this change in national income is set to catalyze a major cycle of private sector investment.’
Explain how the accelerator process is likely to affect economic growth.
222 exam-style questions on AQA A Level Economics 2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts, covering 2.2.1 The circular flow of income, 2.2.2 Aggregate demand and aggregate supply analysis, 2.2.3 The determinants of aggregate demand, 2.2.4 Aggregate demand and the level of economic activity, 2.2.5 Determinants of short-run aggregate supply, and 2.2.6 Determinants of long-run aggregate supply. Each one has a worked solution and a mark scheme showing where the marks go.