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Accelerator comes from the Principle of Acceleration. In managerial Economics, Acceleration Principle means, the rate of change in aggregate Demand to the Rate of Change in Investment.
Eg: A company manufactures 100 pieces of cloth with a textile Manufacturing Equipment. The demand for the textile good is 60. So the firm's investment is much higher than the demand.
Suppose the demand increases to 120 pieces. The company can produce only 100 with existing machinery. It will still continue to provide the existing 100 pieces output (without investing in additional machinery)
Reason: the diff between demand and Supply is only 20. The investment will be a huge expense against this differential.
But when the demand reaches, 180 or 200, the company may plan to invest in a new machinery. The differential is higher.
Thus acceleration in aggregate demand leads to acceleration in the rate of Investment.
This is a concept of Macro Economics.
Gyan Prakash Singh
MBA(IT)
er_gyanpsingh@Yahoo.com
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