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

Notes

Notes Super-multiplier tells that if there is any initial growth in autonomous investment,
then in the income there will be growth of Ks time of autonomous investment.

Where Ks is super multiplier, c is marginal consumption , v is marginal investment and s is marginal
savings tendency (s = 1 – c).
Super-multiplier tells that if there is any initial growth in autonomous investment, then in the income
there will be growth of Ks time of autonomous investment. In this manner, in general form super
multiplier will be,
1
∆ Y = ∆Ι a = Ks Δ Ia
−
1c −n
Now we will describe joint working of multiplier and accelerator in form of above equation. Assume
that c = 0.5, v = 0.4 an there is an increase of ` 100 crores in autonomous investment, then increase
in total income will be,
ΔY= × 100
1
× 100 = 10 × 100 = 1000
0.1
It shows that increase of ` 100 crores in autonomous investment increased the income to 100 crores.
General multiplier would have increase the income only up to ` 200 crores, assuming this that value of
multiplier K is 2 , because MPC = 0.5, but Multiplier by combining with accelerator(Ks = 10) increased
the income up to ` 1000 crores which is much more than increase by a general multiplier.

Self Assessment

Fill in the blanks:
1. Combined effect of multiplier and accelerator is called ................
2. Leverage effect may take the economy to a very high or a very .......... level of income
multiplication.

Table I: Multiplier Accelerator Interaction
(crore `)
Duration Initial Induced Induced Increase in Increase in
Investment consumption Investment income total Income
(t) (c = 0.5) (v = 0.4) (∆Y = c + v)
(1) (2) (3) (4) (5) (6)
0 0 0 0 0 0
t + 1 100 … … 100 100
t + 2 100 50 40 90 190
t + 3 100 45 36 81 271
t + 4 100 40.5 32.4 72.9 3439
t + 5 100 36.45 29.16 65.61 40951
… … … … … …
t + n 100 0 0 0 1,000

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