Multiplier and Accelerator Concept in Macroeconomics

Multiplier Concept

• Explains how an initial change in spending can cause a larger change in national income.
• This happens because an initial change in spending leads to further increases in spending throughout the economy.

Accelerator Concept

• Explains the relationship between investment and changes in national income.
• It suggests that investment spending accelerates when national income grows rapidly.
• When national income falls, investment spending decelerates.

Importance of the Multiplier Concept

• Helps economists predict the impact of changes in government spending or taxes on national income.
• It is crucial for understanding and managing economic fluctuations.

Multiplier Formula

• K = 1 / (1 - MPC)
• Where:
  • K is the multiplier
  • MPC is the marginal propensity to consume, which is the proportion of additional income that is spent.

Test your understanding of multiplier and accelerator concepts in macroeconomics. Learn how these two concepts measure the impact of changes in economic variables and influence economic activities.