Final answer:
Expansionary fiscal policy is indeed more likely to lead to a short-run increase in investment when the investment accelerator is large, and the impact of interest rate sensitivity on investment is less straightforward due to potential crowding out effects.
Step-by-step explanation:
True or false: Expansionary fiscal policy is more likely to lead to a short-run increase in investment when the investment accelerator is large than when it is small. The answer to this is true. A large investment accelerator implies that a given increase in output will lead to a larger increase in investment. Thus, the impact of expansionary fiscal policy is magnified.
When the interest rate sensitivity of investment is large, the effects of expansionary fiscal policy on investment are less clear. While fiscal stimulus aims to boost economic activity, it may also lead to higher interest rates, which could discourage investment, a phenomenon known as crowding out. However, if the investment accelerator is significant enough, it may still prompt an increase in investment despite higher interest rates, because the initial increase in income and output from the fiscal expansion could lead to further investments.