The Acceleartor Effect  

 

Definition The Accelerator Effect: The accelerator effect states that investment levels are related the rate of change of GDP. Thus an increase the rate of economic growth will have a corresponding larger increase in the level of investment.

Implications of the Accelerator Effect

• Investment tends to be more volatile than economic growth
• The the rate of economic growth stays the same. Investment levels will also stay the same
• Investment spending can fall even when GDP is rising. This is because if there is a fall in the rate of economic growth firms may invest less.
• If GDP falls, investment spending can fall very significantly.
• Accelerator Coefficient. This is the level of induced investment as a proportion of a rise in National income accelerator coefficient = Investment / change in Income

 

Related Essays and Revision Notes

• Guide to Investment
• Saving, Capital Stock and Investment

 

• Economics Dictionary at Amazon.co.uk
• Economics Dictionaryat Amazon.com