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The accelerator model is very similar to the multiplier. The accelerator theory of investments assumes that firms’ output levels from the basis for expectations of future needs for capital. Or investments is assumed to be primarily linked to change in demand for output rather than to a change in interest rates. Firms experiencing an increase in demand will need to increase total capital. If output is growing at a constant rate, firms will also increase their capital spending at a constant rate. Whole an increase in growth will cause firms to increase desired investment levels.

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