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Accelerator effect

Where planned capital investment is linked positively to the past and expected growth of consumer demand or national income.

The accelerator effect is based on the idea that investment spending creates a positive feedback loop: as investment increases, it creates jobs and income, which in turn leads to increased consumer spending, which in turn leads to further increases in investment. This positive feedback loop can result in a virtuous cycle of economic growth. The accelerator effect is a key concept in Keynesian economics and is often used to explain how economic booms and recessions can occur.

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