I am having a hard time understanding the theory of Accelerator .Please can anyone explain the whole thing in detail...Also the calculation of the columns of the table given in the notes (relating to the Accelerator) is very confusing..So if anyone can help, I will be highly obliged..Thank you.
Acclerator theory can be used to explain business cycles. In an economy the new investments is not determined by the level of output(GDP), but by the rate of change of output/GDP. During upturn phase of the business cycle, organization see a large rate of change of output and invest heavily(capacity expansion say machinery). This investment is pumped in to the economy as the new aggregate demand and multiplies the output even further(see multiplier theory and circular flow of income). This change in output again triggers a slew of investment again. This is called Accelerator.
