Page 225 - DECO402_Macro Economics

Macroeconomic Theory

Notes consumption tendency is more than zero and less than 1 (0 < α < 1) and value of accelerator is more
than zero (0 < β), Samuelson describes five types of cyclical ups and downs summary of which is
given in table 24.1."
Situation 1 expresses the cycleless path of Samuelson because it is dependent only on multiplier effect
and accelerator does not do any job in it. It has been shown in figure 24.2 (A)
Situation 2 expresses damped cyclical path which rises and falls around static multiplier level and
slowly settles at that level as has been shown in figure 24.2 (B)

Mutual Activity Model of Samuelson

Situation Value Trade of the cycle
1. α = .5, β = 0 Cycleless path
2. α = .5, β = 1 Damped ups and downs
3. α = .5, β = 2 Ups and downs of Constant Amplitudes
4. α = .5, β = 3 Explosive cycle
5. α = .5, β = 4 Cycleless explosive path

Situation 3 expresses cycles of constant amplitudes which revolve around their own attributes level
again and again. This situation is shown in figure 24.2 (C).
Situation 4 reveals anti damped or explosive cycles. for it, see figure 24.2 (D).
Situation 5 is related to cycleless explosive upward path, which finally reaches the cumulative interest
rate of increase, as has been shown in figure 24.2 (E).
The five conditions that have been described above, out of those nature of only three situations no.
2, 3 and 4 is cyclical. But only two may be kept be reducing them because situation no. 3, relating to
constant amplitudes has not come in use. As far as situation no. 2 of damped cycles is related, though
not regularly, but in the last half century has been taking place slowly. “Generally, in comparison to
war-time period, during post war period cycles are comparatively damped." They are result of “Such
shocks- which may be called erratic shocks which are generated from such exogenous sources like
war, change in crops, inventions etc which may be hoped for attaining sufficient stability." It is not
possible to measure their results.
Situation number 4 of explosive cycles cannot be found in the past. Reason for the lack of those cycles
is the result of those exogenous sources, which limit ups and downs. But Hicks has built the trade
cycle by taking the validity of values, which endorses trade cycle controlled by peaks and bottoms.

Critical Appraisal

A very big attribute of the mutual activity of Multiplier and accelerator is it, in comparison to multiplier
or accelerator alone, increases the national income very fast. It is a useful tool not only for the description
of trade cycles but also is form of a guide for stabilisation policy. As Prof. Kurihara has targeted,
“Multiplier based on the concept of marginal consumption tendency, only by meeting the analysis,
works in form of a useful tool of accelerator rule trade cycle analysis and in form of a useful guide of
trade cycle policy." Multiplier and accelerators, by joining together create ups and downs. As much
more will be the value of accelerator (β), possibility of explosive cycle will be that much more. As
much will be the value of Multiplier (α), possibility of cycleless path will be that much more.
Agreeing with Prof. Estey, we may say in form of conclusion that- “Combination of multiplier and
accelerator seems to be keeping the capacity to generate cyclical ups and downs. Multiplier along does

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