Difference between multiplier and accelerator in economics?

Answer 1

The multiplier in economics perspective implies that an initial income puts multiple effect in economy and becomes causes of growth and incomes of others. For example we presume that a person gets income amounting to Rs.1000/- and we also presume that Marginal Propensity to Consumption (MPC) is 3/4. It means that he will spend Rs.750/- (1000 x3/4) and the rest amount he keeps for precautionary measures / investment. His expenditure of Rs.750/- is the income of other person - he also will expend Rs.563/- and it becomes the income of other and he will expend Rs.422/-. In this way it is established that an initial income of Rs.1000/- will put effect at least four or five times on investment in the prevailing economy leading increase in Gross Domestic Product (GDP). On the other end Accelerator implies that when output increases in an economy it also increases / accelerates investment to great extent and briskly.