Page 99 - DECO402_Macro Economics

Macroeconomic Theory

Notes Self Assessment
Fill in the blanks:
1. …………………..used this name ‘A theory of Acceleration’ first time in economics in 1917.
2. Accelerator coefficient is the……………….of Induced investment and consumption expenses
between the starting changes.
In economics, desired stock of capital is depending on the change in demand of production. Capital
stock will change by any change in production. Further its change is equals to the v time’s change in
production. So ∆I = n∆Y , where v is accelerator. If the price if one machine is 4 lacks rupees and it
t
t
produced 1 lacks production, the value of v is 4. An entrepreneur whose want to increase his production
1 lack rupees per years and he should be invested 4 lacks rupees on this machine. It is also applied
on a economy equally where if the value of accelerator is more than one then production want more
capital per unit, so net investment (it is because of the increment of production) is more increased.
Gross investment is equals in economy, replacement investment + net investment. Being constant the
replacement investment, gross investment will change according to every level of production.
The theory of Acceleration can be show by the following equations of Brooman:
I = n (Y – Y t – 1 ) + R
gt
t
= n ∆Y + R
t
Where I is the gross investment in t period, n is accelerator; Y is the national production in period t,
t
gt
Y is the national production in last period (t – 1), and R is the replacement investment.
t – 1
Equation tells that in the period of time t induced investment depend on deference of multiply
accelerator (v) on production time from t - 1 to t plus replacement investment (R).
For find out the net investment (I ), R is removed from both sides of equations so there is net investment
n
in t period:
I = n (Y – Y )
nt t t-1
= n ∆Y t
This equation is only ∆I = n∆Y because if ∆Y = Y – Y is Y > Y then net investment is positive during
t–1
t
t–1
t
t period. Other side, if Y < Y then future investment is negative or disinvestment during t period.
t–1
t

Notes J. M. Clark used this name ‘A Theory of Acceleration’ first time in economics in
1917.

Its Assumptions
The theory of Acceleration is based on following assumption-
1. It considers the constant capital-production ratio.
2. It considers that resources are available easily.
3. Plants have not any extra or passive efficiency.
4. It is considers that increasing demand is constant.
5. It is also assumption that the supply of capital and credit is flexible.
6. Net investment is fast increase the increment in production.
7. There are no any differences between desired capital stock and actual capital stock.

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