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Hitesh Jhanji, Lovely Professional University Unit-11: The Theory of Acceleration

Unit-11: The Theory of Acceleration Notes

Contents
Objectives
Introduction
11.1 The Theory of Acceleration
11.2 Role of Accelerator as a Theory of Investment
11.3 Summary
11.4 Keywords
11.5 Review Questions
11.6 Further Readings

Objectives

After studying this unit, students will be able to:
y Know the theory of Acceleration,
y Know the investment theory of Accelerator.

Introduction

T. N. Carver was the first economist who’s understood the relation between consumption and future
investment in 1903. But Aftalion analyzed that principle in 1909. J. M. Clark used this name ‘A theory
of Acceleration’ first time in economics in 1917. Then Hicks, Samyulasan and Goodwin developed
by business cycle.

11.1 The Theory of Acceleration

The Theory of Acceleration is based on facts that the demand of capital things is derived from the
demand of those consumption things, which are helpful in that output. A theory of Acceleration clears
that process by which the investment of capital things increased or decreased by the increment or
decrement in the demand of consumption things. According to Kurihara, “Accelerator coefficient is
the ratio of Induced investment and consumption expenses between the starting changes.”
In formula form, β = ∆I /∆C or ∆/I = β∆C , where β is an Accelerator coefficient, ∆I is the net change
t
t
t
t
t
in investment and C is the net change in consumption expenses. If 30 crores investment is increased
t
by the increment in the 10 crores consumption expense, then 3 is the accelerator coefficient. Hicks
more describes the theory of Acceleration that it is the ratio of change which happens by induced
investment in production. So accelerator V = ∆I /∆Y or capital production ratio. It is depend on the
t
t
change in investment (∆I ) and related change (∆Y ) in production. It shows that demand for capital
t
t
things are not only creates by consumption things but by any direct demand of national production.
In both descriptions β and n are equals.

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