The term ‘accelerator’ is associated with the name of J.M. Clark in the year 1914. It has been proved a powerful tool of economic analysis since then. According to the principle of the accelerator, when income increases, people’s spending power increases; their consumption increases and consequently, the demand for consumer goods increases. To meet this enhanced demand, the investment must increase to raise the productive capacity of the community. Initially, however, the increased demand will be met by over-working the existing plants and machinery. All this leads to increased profits, which will induce entrepreneurs to expand their plants by increasing their investments. Thus a rise in income leads to a further induced investment. Thus, the accelerator is the numerical value of the relation between an increase in income and the resulting increase in investment.
In other words, the Principle of Acceleration states that if the demand for consumption goods rises, there will be an increase in the demand for the equipment, say machines, which produce these goods. But the demand for the machines will increase faster than the increase in demand for the product. The accelerator, therefore, makes the level of investment a function of the rate of change in consumption and not of the level of consumption. Thus, the acceleration coefficient is the ratio between induced investments and given net consumption expenditures change.
Symbolically,
Where stands for acceleration coefficient; ΔI denotes the net changes in investment outlays, and ΔC denotes the net change in consumption outlays. Suppose an additional expenditure of Rs. 10 crores on consumption goods leads to an added investment of Rs. 20 crores in investment goods industries, then the accelerator is 2. The actual value of the accelerator can be one or even less than that.
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