The acceleration principle, Managerial Economics

Assignment Help:

THE ACCELERATION PRINCIPLE

Suppose that there is a given ratio between the level of output Yt at any time t, and the capital stock required to produce it Kt and that this ratio is equal to α, hence:

            Kt =αYt

The coefficient is the capital-output ratio, α, = K/Y and is called the accelerator co-efficient.

If there is an autonomous increase in investment, ?I this through the multiplier process will lead to increased employment resulting in an overall increase in income, ?Y.  This may lead to further investment called Induced Investment in the production of goods and services. This process is called acceleration.

The ratio of induced investment to the increase in income resulting from an initial autonomous increase in investment is called the accelerator. Thus, if the included investment is denoted by ?I1, and the accelerator by β, then:

                                           ?I1

                                               ---------------- = β, ΔI1 = βΔY

                                                      ?Y

Thus another way of looking at the accelerator is as the factor by which the increase in income resulting from an initial autonomous increase in investment is multiplied by the induced investment.

From the Keynesian model ?Y = ?1.1/s  we c an write

                                              Δ11 = β, Δ1.1/s  

Thus, the higher the multiplier and the higher the accelerator, the higher will be the level of induced investment from an initial autonomous increase.


Related Discussions:- The acceleration principle

Simple macro model, Using the same simple macro model we developed in Modul...

Using the same simple macro model we developed in Module 2: a.  Show what will happen to national income (GDP) if the administration implements another $100 (billion) stimulus s

Question, Q.2. On the basis of the analysis of the case above, what is your...

Q.2. On the basis of the analysis of the case above, what is your opinion about legalizing marijuana in Canada ?mum 100 words accepted#

#title.total revenue, if Q=120-2p is the equation for demand curve, find th...

if Q=120-2p is the equation for demand curve, find the compounding total, marginal and average revenue function

Essay, Help with writing papers and analysis for case "The Ready-To-Eat Bre...

Help with writing papers and analysis for case "The Ready-To-Eat Breakfast Cereal Industry" in 1994

Functions of central bank , FUNCTIONS OF CENTRAL BANK Economists and f...

FUNCTIONS OF CENTRAL BANK Economists and financial experts lack in unanimity about the functions of a central bank. According to Kisch and Elkin, the essential function of a c

Production, Explain the theory of production, Managerial Economics Explain...

Explain the theory of production, Managerial Economics Explain the Theory of Production

Why do managers need to know economics?, Economics contributes a great deal...

Economics contributes a great deal with towards the performance of managerial duties and responsibilities. Just as biology donates to the medical profession and physics of engineer

Aggregate demand, AGGREGATE DEMAND This refers to the total planned or...

AGGREGATE DEMAND This refers to the total planned or desired spending in the economy as a whole in a given period. It is made up of consumption demand by individuals, planned

Managerial Economics, Calculate point elasticity of demand for demand funct...

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

What do mean by convex isoquant, Q. What do mean by Convex Isoquant? I...

Q. What do mean by Convex Isoquant? Isoquants are convex to the origin: At any point of an isoquant,the slope is negative. Its numerical value measures the marginal rate of te

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd