Page 102 - DECO402_Macro Economics

Unit-11: The Theory of Acceleration

5. Does not Explain Timing of Investment: The mean of find full capacity is that increasing Notes
demand of production comes inspired investment. So acceleration rule failed in the timing
of investment. In better form, it arranges the quantity of investment. Actually, there can be
possible time lag before new investment breeding. Example, if time lag is 4 years then the
effect of new investment will not seems in 1 one year but its seems in 4 years.
6. Does not Consider Availability and Cost of Capital Goods: Now, the time lag of find the
capital things are depend on the its availability and cost or availability of finance and its
cost.
7. Acceleration Effect, Zero for Installed Capital Equipment: It is consider that the increment
in the demand of consumer things were not already assume and there was no arrangement
for of its in last investment. If being the prediction of future demand, capital logistic already
involved, then there will not inspired investment by it and acceleration effect will be zero.
8. Does not work for Temporary Demand: This principle is also consider that new consumption
demand is permanent. If its hope that the demand is temporary for customer things, then
producer will not invest in new capital things. Expect it they can fulfill the increasing demand
by deep work of present capital logistic. So acceleration will not successful.
9. Supply of Credit not Elastic: Acceleration considers that the supply of credit is flexible.
Because when inspired investment is on the inspired consumption, then cheap credit can
easily find for investment in capital things industry. If cheap credit will not available in
proper quantity, then the rate of interest will high and there will very less investment in
capital things. So, acceleration will not work properly.
10. Neglects the role of Expectations: The main mistake of acceleration rule is that it neglects
the role of expectations in take decision by entrepreneurs. Investment decisions are not only
effected by demand. It’s also affected by the future expectancy like stock market change,
politics stir, international incidents, economic environment etc.
11. Neglects the Role of Technological Factors: On more mistake of acceleration is that it neglects
the technological factor in investment. Technological change can be capital-saving or labour
saving. So it can increase or decrease the quantity of investment.
12. Neglects Profits as the Sources of Finance: The mean of its assumption that firms takes the
help of external finance sources for investment objects. But experiential prove show that
firms choose the internal sources expects of external sources. Acceleration rule is weak in
this mean that it neglects the profit in the forms of the sources of internal finance. Actually
the level of profit is main decider of profit.
13. Not Precise and Satisfactory: According to Prof. Knox, the acceleration rule is not real and
also unsatisfied to describe the time-decider of investment. So it is inadequate as investment
principle.
14. Of no use for Lower Turning Point: It is not describe the turn point below business cycle.

Task Express his ides related to acceleration principle.

Despite this limit the rule of Acceleration makes more real and clear the process of income breeding
expect of multiplier principle. Multiplier shows the effect of change in investment on income by the
consumption way, but accelerator show the consumption effects on investment and income. Therefore,
the acceleration explains the fast fluctuations in income and employment on the fluctuations in capital

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