Acceleration

T.N. Carver was the earliest

economists who recognized the
relationship between changes in
consumption and net Investment. This
concept is older than the concept of
multiplier, it dates back to 1914 and
was made popular by J.M Clark.
Post Keynesians say they are not rivals
but they are parallel.

Meaning
Multiplier shows the effect of investment on
consumption the accelerator shows the effect of
change in consumption on investment. Hayek
says, since the production of any given amount of
final output usually requires an amount of capital
several times larger than the output produced with
it during any short period. The principle of
acceleration states that if demand for consumption
goods rises, there will be an increase in demand
for factor of production , say machine which goes
to produce the goods. Machine demand increases
at a faster rate than the demand for the product.

Meaning
Accelerator means the changes in
investment goods industries as a
result of changes in consumption
goods industries.
a= I / C . Suppose an expenditure
of Rs.20 crores on consumption
leads to an investment of Rs. 40
crores then accelerator is 2. a is
always more than zero. a > 0.

Brooman equation
The acceleration principle can be expressed in the form of
Brooman
Igt = v( Y t - Y t-1 ) + R
= v Y + R
Igt gross investment
v accelarator , Y t - is national output at present, Y t-1 previous
period. R is replacement.
Int = v( Y t - Y t-1 )
= v Y .
I = v Y . It has become customary to explain the acceleration
principle in terms of final output (Y) .
If Y t > Y t-1 net investment is postive during t. on the other
hand Y t < Y t-1 net investment is negative

Graphical representation
Output

Time
Igt
Net & Gross
Investment

Int

Assumptions

Constant K-output ratio

Resource are easily available
No excess capacity in plants
Increase in demand is permanent
Elastic supply of credit and capital
Increase in output immediately leads
to a rise in net investment.

Super Multiplier
Hicks JR has combined the multiplier and
the accelerator mathematically and gives it
the name of the super multiplier. It is also
called leverage effect which may lead the
economy to very high or very low level of
income propagation.
The super multiplier is worked out by
combining both induced consumption (C /
Y or MPC) and Induced investment (vy or
I / Y or MPI)

Super Multiplier
Investment component into
autonomous Investment and induced
investment so that investment I = I a +
vY, where Ia is autonomous
investment &vY is induced investment.
Since Y = C+ I
Y =c Y + Ia +v Y
Y -c Y -v Y = Ia
+ Y (1-c-v) = + Ia
Y /Ia = 1/ (1-c-v) = 1/s-v or K

 Super multiplier tells us that if there is an initial

increase in autonomous investment, income will
increase by K times autonomous investment. Y = 1/
(1-c-v) =
1/s-v or K Ia suppose c=0.5, v=0.4 & autonomous
investment increases by Rs 60 crores. Aggregate
income will be 1000crores.
It shows that a rise in autonomous investment by Rs
100 crores has raised income to Rs 1000crores .
The simple multiplier would have raised income bo only
200 crores. But multiplier combined with accelerator
has increased the income to Rs 1000 crores.

Graph

Y
Yt

Path of income

Graph
The curve Oyt shows the time path of
income with a super-multiplier of 10.
The curve rises with time reaches a
new equilibrium level of income Yt
and flattens out it indicates that
income increases at a decreasing
rate.