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Friday, 22 January 2010

Acceleration Principle

An economic economic theory suggest that as demand or income increases in an economy, so does the investment made by firm. Furthermore, when demand levels result in an excess in demand, firm have two choices as to how to meet demand: they can either raise prices to cause demand to drop, or increase investment to match demand. The accelerator theory proposes that the firms increase their investment to meet the increase in demand.

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