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A model relating investment to changes in output. The accelerator model asserts that firms invest more when output is rising and less when it is falling. The argument is that a rise in demand leads some firms to produce more and leads them, and other firms, to expect that demand will rise further. The rise in output raises the ratio of output to capacity, and the expectation of further rises in demand makes firms believe it would be profitable to have more capital equipment. Accelerator-type models help explain empirically observed variations in both fixed investment and investment in stocks and work in progress.

Subjects: Economics.

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