Accelerator Theory of Investment
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Transcript of Accelerator Theory of Investment
Autonomous Investment
Induced Investment
National Income
Inve
stm
ent
I`I
National Income
Inve
stm
ent I`
I
C = R1/1+r + R2/(1+r)2 + R3/(1+r)3 + ....... + Rn/(1+r)n
C = SUPPLY COST OR THE REPLACEMENT COST
R= ANNUAL PROSPECTIVE YEILDS FROM THE CAPITAL ASSET
r = MEC
Period OutputIncome
Required Stock of Capital
CapitalReplacement
Net Investment
Gross Investment
t -1 500 1500 300 0 300
t 510 1530 300 30 330
t + 1 525 1575 306 45 351
t +2 550 1650 315 75 390
t +3 575 1725 330 75 405
t + 4 575 1725 345 0 345
t +5 560 1680 345 -45 300
Kt = Stock of Capital for time t
Net Investment = Kt – Kt -1
Gross Investment = Capital Replacement + Net Investment V = Constant
Here, we take the Value of V as 3
ASSUMPTIONS: -
1. CAPITAL OUTPUT RATIO WILL ALWAYS BE CONSTANT.
2. DEPRECIATION THAT TAKES PLACE IN THE STOCK OF CAPITAL WILL BE 1/5 TH OF THE STOCK EXSISTING IN THE PREVIOUS YEAR, THUS, 1/5 TH OF THE STOCK OF THE CAPITAL SHOULD BE REPLACED EVERY YEAR.