Principle of Acceleration

Principle of Acceleration:

According to the theory of multiplier, the raise in investment produces manifold raise in income. These raises in income increases consumption. The initial raise in demand automatically assembles momentum. The available productive capacities will be exhausted completely. This in turn persuades more investment to meet the increasing demand. Since the existing productive capacity would not be adequate to meet the expanding demand, productive capacities will be expanded by latest investments.

Therefore the level of investment based upon the rate of change in income and the resultant modifications in consumption. This is what termed as the principle of accelerator. According to this principle, total investment is positively associated to modifications in income.

The theory of multiplier defines the effect of investment upon the extent of income. The principle of accelerator defines that the effect of an augment in income upon the extent of investment.

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