Limitations of the Accelerator Principle
- Investments in most cases are not always initiated by change in consumption only but also by increase in autonomous government expenditures.
- The principle assumes existence of full employment of resources which is not always the case. Due to the existence of excess capacity in plants, production can be increased by using the idle resources without necessarily increasing investments.
- Due to limited resources like capital in developing countries; investments may not increase even if consumption increases.
- The principle ignores the possibility of importing goods and services from other countries to meet the increased consumption without increasing investments
- The principle ignores the restrictive policies used by the government which are aimed at controlling and regulating the economy. For example use of restrictive fiscal and monetary policies.
CATEGORIES Economics
TAGS Dr. Bbosa Science
