CA Foundation · Business Economics · Business Cycles
Under the simple accelerator principle, a firm needs capital worth ₹3 for every ₹1 of annual output. Output rises from ₹400 crore to ₹450 crore in a year, and the capital stock was already fully used at ₹400 crore output. In the next year, output remains at ₹450 crore. Induced net investment in the two years respectively is:
Induced net investment is ₹150 crore in the first year and zero in the second. The accelerator of 3 multiplies the change in output: 3 × ₹50 crore gives ₹150 crore, and with output unchanged in year two the change is zero, so no induced investment occurs.
- A₹150 crore and zeroCorrect
- B₹150 crore and ₹150 crore
- C₹50 crore and zero
- D₹450 crore and zero
Explanation
Net investment = accelerator × change in output. Year 1: 3 × (450 − 400) = ₹150 crore. Year 2: output unchanged, so change is zero and net investment = 3 × 0 = zero. Using ₹50 crore ignores the accelerator coefficient. Equal investment in both years wrongly assumes it depends on the output level.
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