An economy is recovering from a deep recession. A £15 billion increase in government investment in infrastructure projects leads to a final cumulative rise in national income of £24 billion. This increase in national income subsequently induces private sector firms to increase their capital investment by £6 billion to meet the rising demand.
Which of the following correctly identifies the economic concepts demonstrated by these events?
The £24 billion rise in national income is due to the accelerator effect, and the £6 billion increase in private investment is due to the multiplier effect.
The £24 billion rise in national income is due to the multiplier effect, and the £6 billion increase in private investment is due to the accelerator effect.
The £24 billion rise in national income is due to crowding out, and the £6 billion increase in private investment is due to the wealth effect.
The £24 billion rise in national income is due to automatic stabilisers, and the £6 billion increase in private investment is due to the marginal propensity to import.
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.