An economy experiences a sustained increase in autonomous investment. This leads to a larger cumulative rise in national income, which subsequently induces firms to increase their capital investment to expand productive capacity.
Which of the following correctly identifies the economic mechanisms driving this sequence of events?
The cumulative rise in national income is driven by the accelerator effect, whereas the subsequent induced investment is driven by the multiplier effect.
The cumulative rise in national income is driven by the multiplier effect, whereas the subsequent induced investment is driven by the accelerator effect.
Both the cumulative rise in national income and the subsequent induced investment are driven entirely by the multiplier effect.
Both the cumulative rise in national income and the subsequent induced investment are driven entirely by the accelerator effect.
22 exam-style questions on OCR A Level Economics The multiplier and the accelerator. Each one has a worked solution and a mark scheme showing where the marks go.