Also found in: Dictionary, Thesaurus, Medical, Legal, Acronyms, Encyclopedia, Wikipedia.

Accelerator Principle

The idea that a small change in consumer behavior can have a large effect on a company's investment. For example, suppose $100 of investment in a bakery produces $100 worth of baked goods. If consumers usually buy $100 of baked goods each year but this increases to $110, the bakery must buy 10% more equipment, baking materials, and so forth, which can increase the amount it invests in its suppliers by more than 10%. The accelerator principle exacerbates advances and declines; it is used in various models of the business cycle. See also: Multiplier.
Acceleratorclick for a larger image
Fig. 2 Accelerator. The graph shows how gross national product and the level of investment vary over time.


the relationship between the amount of net or INDUCED INVESTMENT (gross investment less REPLACEMENT INVESTMENT) and the rate of change of NATIONAL INCOME. A rapid rise in income and consumption spending will put pressure on existing capacity and encourage businesses to invest, not only to replace existing capital as it wears out but also to invest in new plant and equipment to meet the increase in demand. By way of simple illustration, let us suppose a business meets the existing demand for its product, utilizing 10 machines, one of which is replaced each year. If demand increases by 20%, it must invest in two new machines to accommodate that demand in addition to the one replacement machine.

Investment is thus, in part, a function of changes in the level of income: I = f(AY). A rise in induced investment, in turn, serves to reinforce the MULTIPLIER effect in increasing national income.

The combined effect of accelerator and multiplier forces working through an investment cycle has been offered as an explanation for changes in the level of economic activity associated with the BUSINESS CYCLE. Because the level of investment depends upon the rate of change of GNP, when GNP is rising rapidly then investment will be at a high level, as producers seek to add to their capacity (time t in Fig. 2). This high level of investment will add to AGGREGATE DEMAND and help to maintain a high level of GNP. However, as the rate of growth of GNP slows down from time t onward, businesses will no longer need to add as rapidly to capacity, and investment will decline towards replacement investment levels. This lower level of investment will reduce aggregate demand and contribute towards the eventual fall in GNP. Once GNP has persisted at a low level for some time, then machines will gradually wear out and businesses will need to replace some of these machines if they are to maintain sufficient production capacity to meet even the lower level of aggregate demand experienced. This increase in the level of investment at time t1 will increase aggregate demand and stimulate the growth of GNP Like FIXED INVESTMENT, investment in stock is also to some extent a function of the rate of change of income so that INVENTORY INVESTMENT is subject to similar accelerator effects.

References in periodicals archive ?
The newly achieved electron pulses, which last only tens of femtoseconds, pack energy up to 1,000 times as densely as did electron packets produced by wakefield accelerators of the past, Katsouleas notes.
from experiment G to O was intended to study the role of TEBA and then compare its synergistic activity with other accelerators.
The JVXtreme accelerator speeds the actual execution of Java by implementing 87 of the most commonly used Java byte codes in hardware.
Accelerators used in work so far are also shown in table 1.
For one, these tumors are more accessible to the fixed beams emanating from existing accelerators.
Processes delivered by MEGA ITSM Accelerator are provided as reference processes.
7), four pyridazine derivatives were synthesized and proved to be useful as vulcanization accelerators.
The European group is building a more conventional but gigantic circular accelerator, at a cost of more than $1 billion.
The Innovation Accelerator is a tremendous showcase for the creativity, energy and potential of today's young people to use technology in the service of human needs," said Sinclair Stockman, chief science officer at BT.
National Laboratory--included the latest in accelerator technology, the GAO report stated.
Cost-Effective High Performance IDT Network Search Accelerators Chosen by Xelerated to Provide Additional Classification Support to X11 Network Processor for Edge Routing Acceleration
The collaboration of our Chesapeake network processor and the IDT network search accelerator empowers network OEMs to rapidly develop a new generation of multimedia-centric network equipment for the broadband market," said Charles Gershman, Bay Microsystems' founder, president and CEO.

Full browser ?