Accelerator Principle

Business, Legal & Accounting Glossary

Definition: Accelerator Principle

Accelerator Principle

Full Definition of Accelerator Principle

The accelerator principle defines the growth in output that would induce a continuation in net investment. In other terms, net investment is a function of the alteration in output. The accelerator principle has played an important role in defining the fluctuations in investment, which is an integral part of business cycle theories that are still used today.

The accelerator principle often assumes that the ratio of capital to output is retained at a constant level. For example, if a commercial entity producing leather bags invests $1,000 worth of equipment to produce $1,000 worth of products annually, and each year one-tenth of its equipment wears out, the total investment for a replacement would be $100 assuming that there is no growth or decline. In such a case, if the sale of leather bags increases by 5% to $1,050 annually, the amount of equipment will also rise by 5% to $1050. However, the total investment will increase by 50% to $150 to achieve the desired level. Consequently, it can be said that the companies desire to achieve constant capital-to-output ratio, a marginal percentage change in the sale of products can result in a higher percentage change in investment.

The accelerator principle can be used for inventories, although the term generally relates to business investments in companies and equipment. The use of the accelerator principle in investment facilitates one during business fluctuations in estimating swings in inventories.

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Accelerator Principle. Payroll & Accounting Heaven Ltd.
May 20, 2024
Chicago Manual of Style (CMS):
Accelerator Principle. Payroll & Accounting Heaven Ltd. (accessed: May 20, 2024).
American Psychological Association (APA):
Accelerator Principle. Retrieved May 20, 2024
, from website:

Definition Sources

Definitions for Accelerator Principle are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th March, 2020 | 0 Views.