Live revision! Join us for our free exam revision livestreams Watch now

Topic Videos

The Accelerator Effect

AS, A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 2 Nov 2017

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

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.