## The acceleration principle, Managerial Economics

Assignment Help:

THE ACCELERATION PRINCIPLE

Suppose that there is a given ratio between the level of output Yt at any time t, and the capital stock required to produce it Kt and that this ratio is equal to α, hence:

Kt =αYt

The coefficient is the capital-output ratio, α, = K/Y and is called the accelerator co-efficient.

If there is an autonomous increase in investment, ?I this through the multiplier process will lead to increased employment resulting in an overall increase in income, ?Y.  This may lead to further investment called Induced Investment in the production of goods and services. This process is called acceleration.

The ratio of induced investment to the increase in income resulting from an initial autonomous increase in investment is called the accelerator. Thus, if the included investment is denoted by ?I1, and the accelerator by β, then:

?I1

---------------- = β, ΔI1 = βΔY

?Y

Thus another way of looking at the accelerator is as the factor by which the increase in income resulting from an initial autonomous increase in investment is multiplied by the induced investment.

From the Keynesian model ?Y = ?1.1/s  we c an write

Δ11 = β, Δ1.1/s

Thus, the higher the multiplier and the higher the accelerator, the higher will be the level of induced investment from an initial autonomous increase.

#### What statistical method used to estimate economic variable, Statistical tec...

Statistical technique used to estimate economic variable Some statistical techniques are used to estimate economic variables of interest to a manager. In a number of cases, sta

#### Homework, 1. What does a MNC have to consider that a domestic company does ...

1. What does a MNC have to consider that a domestic company does not, and how does this impact capital budgeting? in addition to the complications encountered in doing a capital bu

#### Full-service department, Like supermarkets, full-service department stores ...

Like supermarkets, full-service department stores like Macy's are mainly in decline. What factors may these types of stores have in common behind their declines? How would you veri

#### Taxation, effects and implication of taxation in relation to managerial eco...

effects and implication of taxation in relation to managerial economics

#### Mixed economy, The Mixed Economy There are no economies in the world w...

The Mixed Economy There are no economies in the world which are entirely 'market' or planned, all will contain elements of both systems. The degree of mix in any one econom

#### Sat scores, 100 schools are given exactly one million dollars each in grant...

100 schools are given exactly one million dollars each in grant money. They can spend the money on any or all of three programs: math tutoring (math), kickball lessons (kickball),

#### Inflation is not possible under the gold standard, "Inflation is not possib...

"Inflation is not possible under the gold standard." Is this declaration true, false, or uncertain? Describe your answer

#### fiscal policy, What do you mean by the fiscal policy? What are the instrum...

What do you mean by the fiscal policy? What are the instruments of fiscal policy? Briefly comment on India's fiscal policy.

#### Explain the game theory, Q. Explain the Game theory? Game theory:   Ga...

Q. Explain the Game theory? Game theory:   Game theory is a branch of applied mathematics which is used in the social sciences, most particularly in economics, as well as in b

#### Slope of the demand curve and price elasticity, The elasticity of a demand ...

The elasticity of a demand curve is frequently judged by its appearance: the flatter the demand curve, the greater the elasticity and vice versa. However this conclusion is mislead  