Acceleration Principle Macroeconomics & Economics
Accelerators or the principle of acceleration is another important tool in economic analysis. This concept is associated with J.M. Clark who made it popular. Keynes made only a casual mention of this concept in his ‘General Theory’. The concept was refined by many economists like Harrod, Hicks, Samuelson, Robertson, etc. We studied about the Multiplier concept to explain how an investment in an economy emerges as increased income.
But the concept of Multiplier is inadequate to explain the aggregate income. Keynes explained the effect of autonomous investment on the consumption expenditure and how the increase in investment leads to an aggregate increase of national income through ‘multiplier effect’. In short, he explained the effect of investment on consumption. He failed to take note of the effect of increased consumption on the induced investment.
Accelerator in Economics
This gap has been filled up by the principle called Accelerator. What is Acceleration? Whenever autonomous investments take place leading to increased expenditure, the increased demand for consumption goods will induce the optimistic entrepreneurs to read just their planned investment to cater to the demand created.
Accelerator Theory of Investment
The acceleration tells us the effect of increased consumption on induced investment. Taking this increase in induced investment into consideration, the value of the multiplier must be still larger and the cumulative effect on aggregate income should be bigger. Accelerator measures the effect of an increment in the rate of consumption on the volume of investment.
Acceleration Principle of Investment The ratio between the net change in consumption and the induced investment is known as the Acceleration Coefficient. It is found that an increased demand for consumption goods will lead o an increased demand for equipment to produce these goods. When consumption expenditure begins to increase, firms are induced to expand investment to install more machines. The increment in investment that is induced by an increase in consumption will be several times larger.
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