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    Question

    Accelerator theory of investment is the ratio

    of:
    A change in income to change investment Correct Answer Incorrect Answer
    B change in investment to change in income Correct Answer Incorrect Answer
    C change in income to change in interest Correct Answer Incorrect Answer
    D All of the above Correct Answer Incorrect Answer

    Solution

    Accelerator theory of investment is the ratio of change in investment to change in income. It is an economic postulation whereby investment expenditure increases when either demand or income increases. The theory also suggests that when there is excess demand, companies can either decrease demand by raising prices or increase investment to meet the level of demand.

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