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Old 02-24-2003, 04:50 PM
Ducklin Ducklin is offline
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Default Accelerator Theory

I came accros the definition of accelerator theory (on investment) and do not understand the practical use of the accelerator and the logic behind

Can you give me an example to illustrate the importance, logic and the use of the accelerator, please.
The textbook has a simple example and it is as follows:

If economic groth is 1% in 2001 and 2% in 2002, then in 2002 output has gone up by 2%, but growth has gone up by 100%(I don't understand how it got to 100%!)

So, changes in investment tend to be much more dramatic than changes in national income? How can this happen?
According to my logic, given a 1% incread in national income there would not be so much "money" in circulation for investment to increase more dramatically
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Old 02-24-2003, 05:05 PM
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Gandalf Gandalf is offline
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This seems more like a Course 2 question than Course 1.

In your example, the 100% increase is that 2% is 100% larger than 1%.

As I recall from college economics long ago, in the first year, when economic growth is 1%, you need to build some new factories (hence, investment required) to produce that extra 1%. In the second year, when economic growth is 2%, you need to build twice as many new factories. Thus, investment in year 2 is twice as much as investment in year 1.
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