Page 233 - DECO402_Macro Economics

Macroeconomic Theory

Notes rising again which represent the phase of revival of the business cycle. This behaviour of income of
first rising , then falling and then increasing at a fixed rate shows the mixed working of accelerator and
multiplier. But actual behaviour of business cycle depends on the value of multiplier and accelerator
as has been expressed by Samuelson in his Model.

Self Assessment
State whether the following statement are True or False:
7. Super multiplier has been calculated by adding both -the induced consumption and induced
investment.
8. Super multiplier tells that if any initial increase happens in autonomous investment, then an
increase of Ks times of autonomous investment in income will take place.
9. In period t + 2, in 100 income of t + 1 induced investment of 50 does not happen.
10. Actual behaviour of business cycle depends on the value of multiplier and accelerator as has
been expressed by Samuelson in his Model.

25.3 Summary

y In this relation Dr. Kurihara has targeted that marginal consumption tendency less than a
unit provides answer to this question that before complete collapse or in the situation of full
employment why does accumulative process stop? According to Hanson, its reason is this
that a big part of increase in income in each period is not spent on consumption in each next
period. Through it there is a reduction in amount of internally induced investment and when
such reduction increases by increase in induced consumption, then fall in income starts. In
this manner, Prof Hanson has written, “It is marginal tendency of the saving only that stops
the expansion process even then when at the peak of multiplier process through the process
of accelerator expansion is increased.”

25.4 Keywords

y Multiplier- Co-efficient.
y Interaction- Process of meeting.

25.5 Review Questions

1. Define super multiplier or multiplier- accelerator interaction.
2. Mention “uses of multiplier- accelerator interaction In business cycles.”

Answers: Self Assessment
1. Leverage Effect 2. low 3. (a) 4. (a)
5. (b) 6. (a) 7. True 8. True
9. False 10. True
25.6 Further Readings

Books 1. Macroeconomics— Mohan Srivastava, DND publications, 2010.

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