Question

. Describe the interaction between the multiplier and accelerator following an increase in government spending.

Answer 1

The concept of multiplier shows the actual effect of the change in the investment on income and the employment. On the other hand accelerator represents the effect of change in the pattern of consumption on the investment. So when there is a change in the government spending then both the consumption saving and investment changes in the economy and ultimately it changes the pattern of Expenditure in the economy. Therefore it is true that the government spending is affected by the interaction between the multiplier in the accelerator effect because both the concepts are really very important in the stabilization of price in the economy and the main policy of the government is to stabilize price as per the economic policies.