Answer to Question #232451 in Macroeconomics for B foster

Question

Rigid accelerator theory and flexible accelerator theory

Answer 1

Solution:

Rigid accelerator theory refers to a model that describes the investment as a function of output growth only and assumes that the needed stock of capital is obtained in each time period.

 

The flexible accelerator theory also known as the capital stock adjustment model is a theory that looks to modify the simple acceleration principle by removing its major weakness that the capital stock is optimally adjusted without any time lag. The flexible accelerator theory allows for some lags in the adjustment process between the output level and the capital stock level.