Answer to Question #113751 in Macroeconomics for Harriet

Question

Will the ceiling to output be in any way affected by the short-run rate of growth of GDP?
If so, how?
3. Under what circumstances would you expect a rise in national income to cause a large
accelerator effect?
4. Assume that interest rates fall. Under what circumstances will this lead to (a) a large rise
in business investment; (b) little or no change in business investment?

Answer 1

Yes the ceiling to output will be affected by the short-run rate of growth of GDP. Since the higher productivity can increase output, a country's resources will not be sustainable and an economy will return to its full employment level of national output.

3.Circumstances under you would expect a rise in national income to cause a large accelerator effect are:

• when the available supply of investment funds is high
• when the amount of spare productive capacity for business is low
• when the rate change of consumer and spending is strongly positive

4 a. Under what circumstances will lead to a large rise in business investment assuming that interest rates fall:

• when borrowing interests are made cheaper
• when rising the prices of assets such as housing
• when reducing incentives to save
• when mortgage interest payments are lowered

4 b.Little or no change in business investment:

• when there is high interest rates
• when there is insufficient marketing