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Economics

Student Videos

The Accelerator Effect

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

This year 1 macroeconomics topic video looks at the basics of the accelerator effect - a relationship between the rate of growth of real national income and planned capital investment.

What is the accelerator effect?

  • The accelerator effect is a relationship between planned capital investment and the rate of change of national income
  • Consider an industry where demand is rising quickly
  • Firms may respond initially by using their existing capacity more intensively or running down stocks of finished products
  • If they expect high demand will be sustained – they may increase spending on plant and machinery, factories and new technology in order to increase their supply capacity
  • This causes an accelerator effect – where a given change in demand for consumer goods and services will cause a bigger percentage change in demand for capital goods

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