give three criticism of accelerator theory and their implications
Answers
Answer:
Criticism of the Accelerator Theory:
Explanation:
The principle of acceleration has come in for a good deal of criticism in recent years. For example, it has been pointed out by Kaldor that we cannot assume a constant value of the accelerator throughout the trade cycle, that is, it is not true that an increase in output or income by an amount must always give rise to a multiple increase in investment.
The principle of acceleration has come in for a good deal of criticism in recent years. For example, it has been pointed out by Kaldor that we cannot assume a constant value of the accelerator throughout the trade cycle, that is, it is not true that an increase in output or income by an amount must always give rise to a multiple increase in investment.This is because, if already, some machines are lying idle, we shall try to use them before rushing in for new equipment. Also, if expectation of entrepreneurs is that the rise in demand brought about by increase in income or output is only a temporary one, they will try to meet it by overworking the existing machinery rather than installing a new plant. Thus, in the theory of accelerator it has been assumed that there is no excess capacity existing in consumer goods industries.
Further, in the acceleration principle it has also been assumed that in the capital goods industries, there exists surplus productive capacity. If there is no excess capacity in the machine-making industries, increased demand for machines caused by the requirement for additional output would not lead to increase in the supply of machines.
Further, in the acceleration principle it has also been assumed that in the capital goods industries, there exists surplus productive capacity. If there is no excess capacity in the machine-making industries, increased demand for machines caused by the requirement for additional output would not lead to increase in the supply of machines.In the absence of supply of machines, investment cannot increase in the short run. It is thus assumed in the accelerator theory that the machine-making industry is capable of increasing its output for the time being at least. The supply can be increased by reducing stocks of finished machines, by working extra shifts, and so on. But stocks cannot be reduced below zero and working double shifts or adoption of other experiments is found to be expensive.
The size of the accelerator does not remain constant over time. Its value will be affected by the businessmen’s calculation regarding the profitability of installing new plants to make more machines on the basis of their probable working life. It is also assumed that the demand for machines will remain stable in future, although the increase in demand has suddenly cropped up.
The size of the accelerator does not remain constant over time. Its value will be affected by the businessmen’s calculation regarding the profitability of installing new plants to make more machines on the basis of their probable working life. It is also assumed that the demand for machines will remain stable in future, although the increase in demand has suddenly cropped up.However, in spite of the above limitations of acceleration principle, it points out an important force which causes economic fluctuations in the economy. Economists like Samuelson, Hicks and Dusenberry have shown how accelerator combined with multiplier provides an adequate and satisfactory theory of business cycles that occur in free market economies...
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