Q.Mention the differences between Accelerator and Multiplier effect.

The multiplier measures the effect of a change in investment on income, while the accelerator measures the effect of a change in income/consumption on investment — they work in opposite directions. | Basis | Multiplier | Accelerator | | --- | --- | --- | | Meaning | Effect of a change in investment on income | Effect of a change in income/consumption demand on investment | | Direction | Investment leads to income | Income (demand) leads to investment | | Formula | K = ΔY / ΔI = 1 / (1 - MPC) | v = ΔI / ΔC (or ΔI / ΔY) | | Depends on | Marginal propensity to consume (MPC) | The capital-output ratio | | Type of investment | Explains autonomous investment | Explains induced investment | - The multiplier explains how an initial injection of investment raises income by a multiple amount through successive rounds of spending. - The accelerator explains how a rise in demand for consumer goods induces firms to invest more in capital goods, and the induced investment is a multiple of the change in demand. - When the two operate together (the super-multiplier / leverage effect), they reinforce each …