Question

What is accelerator theory of investment

Answer 1

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The accelerator effect in economics refers to a positive effect on private fixed investment of the growth of the market economy (measured e.g. by a change in Gross Domestic Product). (This expenditure is called fixed investment.)

The accelerator effect happens when an increase in national income (GDP) results in a proportionately larger rise in capital investment spending. In other words, we often see a surge in capital spending by businesses when an economy is growing quite strongly.

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