The basic accelerator process
When national income rises, firms need more capital to meet higher demand. The accelerator shows that this causes investment to increase by a proportionally larger amount than the original rise in income.
Formula
Accelerator: ΔI = v × ΔY (where v = capital-output ratio)
Real World
When Amazon's UK sales grew strongly in 2020–21, the company invested billions in new warehouses and logistics infrastructure — a far larger proportional increase than the rise in sales, illustrating the accelerator in action.
Exam Focus
In evaluate questions, always note a limitation: investment may not rise if firms have spare capacity or pessimistic expectations.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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