Samuelson’s Multiplier-Accelerator model combines two critical concepts in economics: the multiplier effect and the accelerator principle. The multiplier effect suggests that an initial change in spending (like investment) leads to a more significant overall increase in income and consumption. For example, if a government increases its spending, businesses may respond by hiring more workers, which in turn increases consumer spending.
On the other hand, the accelerator principle posits that changes in demand will lead to larger changes in investment. When consumer demand rises, firms invest more to expand production capacity, thereby creating a cycle of increased output and income. Together, these concepts illustrate how economic fluctuations can amplify over time, leading to cyclical patterns of growth and recession. In essence, Samuelson's model highlights the interdependence of consumption and investment, demonstrating how small changes can lead to significant economic impacts.
Start your personalized study experience with acemate today. Sign up for free and find summaries and mock exams for your university.