AccelerationT.N. Carver was the earliest economists who recognized the relationship between changes in consumption and net Investment. This concept is older than the concept of multiplier, it dates back to 1914 and was made popular by J.M Clark. Post Keynesians say they are not rivals but they are parallel. say machine which goes to produce the goods. Machine demand increases at a faster rate than the demand for the product.Meaning • Multiplier shows the effect of investment on consumption the accelerator shows the effect of change in consumption on investment. Hayek says. . there will be an increase in demand for factor of production . ‘since the production of any given amount of final output usually requires an amount of capital several times larger than the output produced with it during any short period’. The principle of acceleration states that if demand for consumption goods rises. a is always more than zero. a > 0. • a= ∆I / ∆C . Suppose an expenditure of Rs. . 40 crores then accelerator is 2.20 crores on consumption leads to an investment of Rs.Meaning • Accelerator means the changes in investment goods industries as a result of changes in consumption goods industries. R is replacement. Y t-1 previous period.Y t-1 ) + R = v ∆Y + R Igt – gross investment v – accelarator . It has become customary to explain the acceleration principle in terms of final output (Y) . If Y t > Y t-1 net investment is postive during t. Int = v( Y t .Y t-1 ) = v ∆Y . ∆ I = v ∆Y .Brooman equation The acceleration principle can be expressed in the form of Brooman Igt = v( Y t .is national output at present. Y t . on the other hand Y t < Y t-1 net investment is negative . Graphical representation • Output • • y Time Igt Net & Gross Investment Int . .Assumptions • • • • • • Constant K-output ratio Resource are easily available No excess capacity in plants Increase in demand is permanent Elastic supply of credit and capital Increase in output immediately leads to a rise in net investment. • The super multiplier is worked out by combining both induced consumption (∆C / ∆Y or MPC) and Induced investment (vy or • ∆I / ∆Y or MPI) . It is also called leverage effect – which may lead the economy to very high or very low level of income propagation.Super Multiplier • Hicks JR has combined the multiplier and the accelerator mathematically and gives it the name of the super multiplier. Super Multiplier • Investment component into autonomous Investment and induced investment so that investment I = I a + vY. • Since Y = C+ I • ∆Y =c ∆Y + ∆Ia +v ∆Y • ∆Y -c ∆Y -v ∆Y = ∆Ia • + ∆Y (1-c-v) = + ∆Ia • ∆Y /∆Ia = 1/ (1-c-v) = 1/s-v or K Ѳ . where Ia is autonomous investment &vY is induced investment. But multiplier combined with accelerator has increased the income to Rs 1000 crores. v=0.4 & autonomous investment increases by Rs 60 crores. ∆Y = 1/ (1-c-v) = • 1/s-v or K Ѳ ∆Ia suppose c=0. income will increase by K Ѳ times autonomous investment.5. • The simple multiplier would have raised income bo only 200 crores. . • It shows that a rise in autonomous investment by Rs 100 crores has raised income to Rs 1000crores .• Super multiplier tells us that if there is an initial increase in autonomous investment. Aggregate income will be 1000crores. Graph • Y Yt • Path of income . .Graph • The curve Oyt shows the time path of income with a super-multiplier of 10. The curve rises with time reaches a new equilibrium level of income Yt and flattens out it indicates that income increases at a decreasing rate.