accelerator principle

In economics, the theory that changes in the level of investment are related to the rate of change of the demand for consumer goods so that an increase in consumers' incomes (and hence demand for the goods that they purchase) gives rise to a more than proportional increase in investment by firms. Because changes in the level of investment themselves generate changes in the incomes of those employed in industries producing capital equipment, the accelerator principle has been used to explain fluctuations in the trade cycle.