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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.
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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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
Sotiriou, "Spinning black holes as particle accelerators," Physical Review Letters, vol.
While Ralph's powers on the show likely came from the dark matter from the particle accelerator explosion, ( TVLine  pointed out last July that the character's comic book counterpart obtained his powers of elasticity from "gingo" fruit extract, which activated a latent metahuman gene in his body.
"EMMA could now define the way forward for this kind of particle accelerator across the world.
Jack Young Jr., guitarist, lyricist, poet and artist, whose compositions included, Grace Young said, "a very cool instrumental" piece titled "Particle Accelerator," committed suicide May 8, 2007.
Experts from the IPPP are providing the theory and analysis behind a number of experiments to be carried out at the Large Hadron Collider (LHC), a gigantic particle accelerator built in Switzerland, which aims to recreate conditions in the early Universe, just after the Big Bang.
To create them, scientists slammed atoms of calcium and americium together at about 32,000 kilometers per second (20,000 miles per second) using a particle accelerator machine.
The exhibition's title borrows the nickname given to the large particle accelerator at CERN (Conseil Europeene pour la Recherche Nucleaire), Geneva, and in the large drawing of the same name Tyson offers a fragmentary view of what the collisions generated by such a machine might lead to, or may have already brought about.
The project will be reported in detail at the Particle Accelerator Conference, March 29-April 2, in New York City (e-mail and is also described on Web site:
Since the first particle accelerator was built by Cockcroft and Walton (see 1929), the energy produced by particle accelerators had increased enormously.
This time, the largest particle accelerator in the world - a 17-mile tunnel under the French-Swiss border - has found a new type of baryon that contains two heavy quarks of the charm variety, the first ever detection of a baryon which has more than one heavy quark.