What Is Acceleration Principle, Accelerator-multiplier Model And Accelerator Coefficient?

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What Is Acceleration Principle, Accelerator-multiplier Model And Accelerator Coefficient?

2 Answers

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Answer 1

Acceleration principle states that investment (other than autonomous investment such as government expenditure on roads, hospitals, etc) is related to output and that each level output requires a particular amount of capital stock to produce it. If output increases the capital stock must increase.

A change in output therefore, induces investment in order to maintain the stock of capital at the required level. In essence, therefore, the principle states that in order to investment takes place, there must be an increase in output and plays down the role of the rate of interest in determining the level of investment
Accelerator coefficient is a factor, which determines how much investment is induced by a change in output. Its value is influenced by the availability of spare capacity, the productivity of capital, the rate of interest, the price of labor etc.

Accelerator-multiplier model is a model of economic growth, incorporating the effects of the acceleration principle and the multiplier. An increase in government expenditure, say, raises consumers incomes which through the multiplier leads to an increase in output which in turn, through the accelerator, raises investment. The increase in expenditure, in the latter, itself raises incomes and the process is repeated

Answer 2

The principle of acceleration working by itself is perhaps not much forceful but recently it has attained more importance in the trade cycle theory by its alliance with the multiplier principle. Professor Samuelson has built a model of multiplier- accelerator interaction. He could show that the interaction of the accelerator with the multiplier is capable, under certain circumstances, of generating continuous cyclical fluctuations.