What is the Acceleration Principle
The acceleration principle is an economic concept that draws a connection between the rate of change of consumption and capital investment. According to the acceleration principle, if demand for consumer goods increases, then the percentage change in the demand for machines and other investment necessary to make these goods will increase even more. In other words, if income and therefore consumption increases, there will be a corresponding but magnified change in investment. It is important to note that this principle does not compute the rate of change in capital investment as a product of the overall level of consumption, but as a product of the rate of change in the level of consumption.
The acceleration principle is also referred to as the accelerator principle.
BREAKING DOWN Acceleration Principle
The acceleration principle has the effect of exaggerating booms and recessions in the economy. This makes sense, as companies want to optimize their profits when they have a successful product, investing in more factories and capital investments to produce more. If a recession hits, they will reduce investment. This investment reduction can increase the length of the recession since business capital expenditure is a driver of economic expansion.