Autonomous And Induced Investment; The Accelerator
Economics notes
Autonomous And Induced Investment; The Accelerator
➡️ Investment: domestic and foreign investment
➡️ Impact on economic growth: increased capital stock, increased productivity, increased employment
➡️ Impact on income distribution: increased wages, increased profits, increased inequality
What is the difference between autonomous and induced investment in economics?
Autonomous investment refers to the investment made by firms regardless of the level of economic activity, while induced investment is the investment made in response to changes in the level of economic activity. Autonomous investment is not influenced by changes in income or interest rates, while induced investment is influenced by changes in these factors.
What is the accelerator theory in economics?
The accelerator theory is a theory that explains the relationship between changes in the level of economic activity and changes in investment. According to this theory, changes in the level of economic activity lead to changes in the demand for goods and services, which in turn leads to changes in the demand for capital goods. This change in demand for capital goods leads to changes in investment, which is known as the accelerator effect.
How does the accelerator theory impact economic growth?
The accelerator theory suggests that changes in investment are a key driver of economic growth. When economic activity increases, the demand for capital goods increases, leading to an increase in investment. This increase in investment leads to an increase in production capacity, which in turn leads to an increase in economic growth. However, if investment does not keep pace with changes in economic activity, it can lead to a slowdown in economic growth.