You are on page 1of 9

Accelerator

T. N. Carver was the first earliest economist who recognised the relationship between changes in consumption and net investment in 1903. But it was Aftalion who analysed this principle in detail in 1909. The term accelerator principle itself was first introduced into economics by J.M. Clark in 1917. It was further developed by Hicks,

Samuelson and Harrod in relation to business cycles.

Principle of Acceleration
The principle of acceleration is based on the fact that the demand for capital goods is derived from the demand for consumer goods which the former help to produce. The acceleration principle explains the process by which an increase (or decrease) in the demand for consumption goods leads to an increase (or decrease) in investment on capital

goods. According to Kurihara, The accelerator coefficient is the ratio between induced investment and an initial change in consumption expenditure. However, the acceleration principle has been more broadly interpreted by Hicks as the ratio

of induced investment to changes in output. Thus the accelerator is equal to I/ Y or the capital-output ratio. It shows that the demand for capital goods is not derived from consumer goods alone but from any direct demand of national output.

In an economy the required capital stock depends on the change in the demand for the output. Any change in the output will lead to a change in the capital stock. This change equals times the change in output. Thus, I =Y

Assumptions
The acceleration principle is based upon the following assumptions: i) The acceleration principle assumes a constant capital-output ratio. ii) It assumes that resources are easily available iii) The acceleration principle assumes that there is no excess or idle capacity in plants.

iv) It is assumed that the increased demand is permanent. v) The acceleration principle also assumes that there is elastic supply of credit and capital. vi) It further assumes that an increase in output, immediately leads to a rise in net investment.