The Simple Accelerator Model of Investment

The Simple Accelerator Model of Investment

The simple accelerator model – states that for each period the
optimum capital stock (K) is positively related to the level
of output in that period by a fixed capital-output ratio.

The accelerator model specifies that the desired stock of capital is
a multiple of the output level.
In its simplest form, net investment is equal to the difference
between the desired capital stock and the stock of capital
inherited from the preceding period. The stock of capital inherited from the last period is the desired capital stock based on the output in the last period.

Investment spending depends on the rate of change in output.
Hence, when business is good and expected output increases, net
investment is positive and vice versa.