Economic Acceleration Principle
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An Economic Acceleration Principle is an increase of economic growth that has positive effect on investments and economic market.
- AKA: Acceleration Principle, Accelerator Principle, Accelerator Effect.
- See: Economic Output Growth Value, Growth Rate, Economic Multiplier Effect, Ratchet Effect.
References
2016
- (Investopedia, 2016) ⇒ http://www.investopedia.com/terms/a/acceleration-principle.asp
- QUOTE: What is the 'Acceleration Principle' - An economic concept that draws a connection between output and capital investment. According to the acceleration principle, if demand for consumer goods increases, then the percentage change in the demand for machines and other investment necessary to make these goods will increase even more (and vice versa). In other words, if income increases, there will be a corresponding but magnified change in investment.
- (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/Accelerator_effect
- The accelerator effect in economics refers to a positive effect on private fixed investment of the growth of the market economy (measured e.g. by a change in Gross National Product). Rising GNP (an economic boom or prosperity) implies that businesses in general see rising profits, increased sales and cash flow, and greater use of existing capacity. This usually implies that profit expectations and business confidence rise, encouraging businesses to build more factories and other buildings and to install more machinery. (This expenditure is called fixed investment.) This may lead to further growth of the economy through the stimulation of consumer incomes and purchases, i.e., via the multiplier effect.
- The accelerator effect also goes the other way: falling GNP (a recession) hurts business profits, sales, cash flow, use of capacity and expectations. This in turn discourages fixed investment, worsening a recession by the multiplier effect.
- The accelerator effect fits the behavior of an economy best when either the economy is moving away from full employment or when it is already below that level of production. This is because high levels of aggregate demand hit against the limits set by the existing labour force, the existing stock of capital goods, the availability of natural resources, and the technical ability of an economy to convert inputs into products.