Page 229 - DECO402_Macro Economics

Macroeconomic Theory Pavitar Parkash Singh, Lovely Professional University

Notes Unit-25: The Super-Multiplier of the Multiplier
Accelerator Interaction

Contents
Objectives
Introduction
25.1 The Super-Multiplier or the Multiplier-Accelerator Interaction
25.2 Use of Multiplier Accelerator Interaction in Business Cycles
25.3 Summary
25.4 Keywords
25.5 Review Questions
25.6 Further Readings

Objectives

After studying this unit, students will be able to:
y Know the Super-Multiplier or the Multiplier-Accelerator Interaction,
y Know the use of Multiplier-Accelerator Interaction in Business Cycles.

Introduction

Combined effect of multiplier and accelerator is also known as leverage effect which may take the
economy to a very high or a very low level of income multiplication.

25.1 The Super-Multiplier or the Multiplier-Accelerator Interaction

Hicks, for measuring the net effect of initial investment combined multiplier or accelerator with
mathematical method and named it Super-multiplier.
Super multiplier is calculated by adding induced consumption (cY or ΔC/ΔY or MPC) and induced
investment (v Y or ΔI/ΔY or MPI). Hicks divides the investment in autonomous or induced investment
so that investment I = Ia + vY where, Ia is autonomous investment and vY is induced investment.
Because Y = C + I
That is why, ΔY = cΔY + ΔIa + v ΔY
ΔY – cΔY – v ΔY = ΔIa
ΔY(1 – c – v) = ΔIa

∆γ 1 1
= =
∆Ι a 1c −n s −n
−
1 1
Or, Ks = =
−
1c −n s −n

222 LOVELY PROFESSIONAL UNIVERSITY