Topic Videos
The Accelerator Effect
- Level:
- AS, A-Level, IB
- Board:
- 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
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