Question

merits and defects of accelerator in economics​

Answer 1

Answer:

Explanation:

merits:

• The accelerator principle is used to help explain business cycles.

• The accelerator theory suggests that the level of net investment will be determined by the rate of change of national income.

• If national income is growing at an increasing rate then net investment will also grow, but when the rate of growth slows net investment will fall.

• There will then be an interaction between the multiplier and the accelerator that may cause larger fluctuations in the trade cycle.

demerits:

• Investment tends to be more volatile than economic growth

• The rate of economic growth stays the same. Investment levels will also stay the same

• Investment spending can fall even when GDP is rising. This is because if there is a fall in the rate of economic growth firms may invest less.

• If GDP falls, investment spending can fall very significantly.

• Accelerator Coefficient. This is the level of induced investment as a proportion of a rise in National income accelerator coefficient = Investment/change in income.