CA Foundation · Business Economics · Business Cycles
In a Hicksian accelerator framework, a firm in India needs capital equal to 3 times its output (accelerator = 3). Output rises from ₹400 crore to ₹450 crore in one year, and it then stays at ₹450 crore the next year. What is the induced net investment in the second year?
Induced net investment in the second year is zero. The accelerator links investment to the change in output, not its level. Output stays at ₹450 crore, so the change is zero and 3 × 0 equals zero, even though the first year's investment was ₹150 crore.
- A₹150 crore
- B₹50 crore
- CZeroCorrect
- D₹1,350 crore
Explanation
Induced investment = accelerator × change in output. In year one, 3 × (450 − 400) = ₹150 crore. In year two output is unchanged, so 3 × 0 = zero. The ₹150 crore option uses the first year's change, and ₹1,350 crore applies the accelerator to the level of output rather than the change.
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