FANDOM


The acclerator is very similar to the multiplier. The accelerator theory of in vestmet assumes that firms past output levels from the basis for expectattions of future needs for capital. in vestment is assumed to primarily lnked to changes in demand for output rather than a a change in interest rates. Firstly, investment expenditure is both highly connected to aggergate demand and also far more volatile than demand changes. Investment changes far more than the change in demand, which serves to increase the fluctuations in a business cycle. Secondly, once output starts to rise, it must contunie to rise at the rate in order fir investment to ramin comstant. Slower growth rate will cause a decline in investment. Whereas a hihger growth rate will lead to a increase in investment. then again the concept of a acclerator is that it enhances relatively mild changes in demand and increase business cylce amplitude. Lastly it is poissible for investment to virtaully collapse due to raltively samll decrease in demand. The accelerator hwever works really weill when we are in a very bad recession. Government spending as well as aggeraget demand will keep on increasing. Alhtough this will not happen when where already in a recession but when we are going to recession. Yet there are number of weakness with the accerator theory. it is not written on paper that forms cannot adjust output by increasing the sue of labor rather than capital-either by ovetime or new hiring. in response to this unwritten rule many businesses operate on excess capacity levels in order to be able to mangage demand surge over shorter time periods and

Ad blocker interference detected!


Wikia is a free-to-use site that makes money from advertising. We have a modified experience for viewers using ad blockers

Wikia is not accessible if you’ve made further modifications. Remove the custom ad blocker rule(s) and the page will load as expected.