We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Economy

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is the Acceleration Principle?

Mary McMahon
By
Updated: May 16, 2024
Views: 12,380
Share

The acceleration principle is a concept in economics that links output to capital investment. As consumers demand more products, companies must increase capacity to make them, which requires them to invest in equipment, machines, and other capital goods. Increased output can also create more economic stability and larger reserves of assets, which encourages companies to invest in order to grow. When economies are trending upwards, capital investment increases. This also works in reverse.

Economists in the early 20th century began exploring the acceleration principle to explore the specific relationship between economic output, measured with means like the Gross Domestic Product (GDP), and capital investment. They found that there was a strong correlation between the two. Consumers demanding more goods need factories to meet that demand. The acceleration principle, in turn, can also connect with a multiplier effect, where increasing capacity creates more jobs, generating more income and increasing consumer demand.

In reverse, when consumer demand starts to fall, companies are less interested in making capital investments. They don’t need to increase capacity to produce enough, and may not have an interest in developing capital assets because of the economic uncertainty. This can also connect with the multiplier effect to drag the economy further down as people lose jobs or never get them in the first place since companies are not investing. Economic recovery can be hindered by the lack of capital investment as well, because firms may need to make substantial investments before they can operate again.

Research on the acceleration principle illustrates the complex interconnections in financial systems. National economies contain a number of elements which can influence the economy as a whole in ways that may be unexpected. The link between increased consumer demand and more robust economic health for manufacturers is clear, but the connection between demand and capital investment can be more subtle. Awareness of this issue can be important for people making policy decisions.

This principle can also be factored in when economists provide analysis and overviews of the economy. They may want to provide it as contextual information to explain specific phenomena, or to provide more information about recommendations in a text. These texts may briefly discuss the acceleration principle if they are aimed at people who are not familiar with economics concepts to make sure they understand. In other instances, terms may not be defined because it’s assumed the audience will know them.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
Share
https://www.smartcapitalmind.com/what-is-the-acceleration-principle.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.