Answer to Question #236420 in Macroeconomics for KAT

Question

Explain the Accelerators theory of investment in detail ?

Answer 1

The accelerator theory of investment is an economic claim whereby investment expenditure tends to increases with increase in demand or income. The accelerator theory of investment suggests that companies either increase their investments to meet a high level of demand or raise the prices of their products and services to meet the excess demand.

According to Keynes when consumption or income increases, investment increases by a multiple amount.