accelerator effect

• Explains volatility of investment by relating it to changes in national income and consumer demand. An initial increase in consumer demand can result in a very large percentage increase in investment but when this begins to level off investment will fall.
• The effect is dampened by the carrying of stocks, the cautiousness of firms and the inability of producer goods and industries to supply capital equipment. 
• The interaction of the multiplier effect and accelerator effect will cause business cycles.