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Acceleration Principle


The acceleration principle has been proposed as a theory of investment demand as well as a theory determining the supply of capital goods. When combined with the multiplier, it has played a very important role in models of the business cycle as well as in growth models of the Harrod-Domar type. The acceleration principle has been used to explain investment in capital equipment, the production of durable consumer goods and investment in inventories (or stocks). In general, it has been used to explain aggregate investment, although it is sometimes used to explain investment by firms (micro-investment behaviour). The main idea underlying the acceleration principle is that the demand for capital goods is a derived demand and that changes in the demand for output lead to changes in the demand for capital stock and, hence, lead to investment. Its distinctive feature, then, is its emphasis on the role of (expected) demand and its de-emphasis on relative prices of inputs or interest rates.

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© 2008 Palgrave Macmillan, a division of Macmillan Publishers Limited

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Junankar, P.N. (2008). Acceleration Principle. In: Durlauf, S.N., Blume, L.E. (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London.

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