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(A). Lecture No.6
Explain native crude/ simple form of acceleration theory.

(B). Lecture No. 7
Flexible Acceleration Theory of Investment

Lecture No.6
Explain native crude/ simple form of acceleration theory.
Explain flexible form of acceleration theory.
Comparison between simple and flexible acceleration theory.
Background of negative acceleration.
Native acceleration theory of investment was given by G.M clock in 1917. According to him investment is the function of the change in demand for consumption goods and for the production of consumption goods, Capital goods are required. In other words, we can say that there is a fixed relationship between output and capital stock. This relationship between output and capital sector. This relationship can be written as in the following equations:

A = Acceleration co-efficient
Kt = Capital Store in Time Period t.
Qt = Output in time period t.

This equation No (1) can be written down in other form it is as:
(2) Kt = a(Qt)

In the equation 2, if “a” is constant. The same relationship maybe written down with one time behind as in equation no (3):
(3) Kt-Kt-1 = a (Qt) – a (Qt-1)
Subtracting equation (3) from equation (2) we have equation (4)
(4) Kt-Kt-1 = a (Qt-1)
Net investment is equal to the difference in capital stock in time period t and t-1 So, Net investment will be equal to

Net Investment: ln = a (Qt) – a (Qt-1) (5)
We can define that net investment is a function of change in output demanded.
(6) ln = a[Qt – Qt – 1] OR
In = a[Δ Qt]
Equation (6) is the equation of native /simple/ crude acceleration theory of investment, which explain that investment take place. When there is a change in the demand of consumer goods. The simple or crude form of acceleration theory is based on some assumption. These assumption do not true in practical life. We can have a criticism of these assumption one by one.
Criticism:
(1). The assumption of fixed capital output ratio is very unrealistic. It cannot remain same by the changing technology of the modern time period.
Place the ad code on articles you want ads to appear, in between the HTML of your content It can take 20-30 minutes for the ad to appear on the page. At first, the ad might show as a normal display ad, but it will soon be replaced by a native ad. See the code implementation guide for more details. (2). The assumption of no access production capacity of production unit is also unrealistic.
(3). The assumption of known life period of machine is also unrealistic.
(4). Role of expectation regarding the factor demand of consumption goods are not available in the theory.
(5). Leges in the change of consumption goods and in the operation of change in capital Stock have not been discussed in any stage of the theory.
(6). Role of change in technology has not been mentioned in the simple acceleration theory of investment
(7). In the simple theory of investment, net investment have been shown as a function of change in output in one time period behind. This is unrealistic in practical life, net investment can be a function of change in consumption goods which have been take place in the far of period. Similarly, net investment can also take place regarding the expectation of change in demand of consumer good. In spite of these critical. This theory of investment have been very popular in economics literature for a very long Period. A refine version of this theory has been given in 1954 by L.M. Koyck which is called flexible theory of acceleration regarding investment

B. Lecture No. 7
(2) Flexible Acceleration Theory of Investment

This theory has been given by L.M koyck in an article (distributed lags and Investment analysis) given in 1954. In simple acceleration theory of investment relationship between desired capital stock and correct output in assume to take place in time period only. But in flexible acceleration theory change in output do not immediately leads to a change in the level of capital Stock nor is a desire to change the capital immediately reflected in actually investment. According to L.M. koyck stock of capital is adjusted not only to current output. But also to the past output with a declining weight given to successively earlier time period. This can be explain with the help of following equations 18 equal

(1) Kt = aB [Qt + (1-B) Qt-1 + (1-B) 2 Qt-2 + (1-B) 3 Qt - 3……]
A: Acceleration Co-efficient
B: Is a fraction less than one.
It denotes the weight assign to output.
1-B ` = Successively one time period behind
1-B² = Successively two time period behind
1-B³= Successively three time period behind
We can have lags equation by one time period behind to get Kt-1 and multiplying both the sides buy 1-B of equation No (1). So we get equation (2)
(2)___ (1-B) (Kt-1) = aB (1-B (Qt-q)) + (1-B) 2 Qt-1 + (1-B) 3 Qt-3

Subtract equation 1 from Equation (2) we have equation (3)

(3) ___ Kt-(1-B) (Kt-1) = ab (Qt) OR
Kt-(1-B) (Kt-1) - ab Qt
The equation (3) can be written as below:
(4) Kt = aBQt + (1-B) (Kt-1)
By definition net investment is equal to the change in capital stock between two successive time periods, which can be written as
(5): In = kt – Kt - 1
Therefore net investment can be written down as in equation (6)
(6) ln = – kt– 1
Equation (6) can be written as equation (7)
(7) ln = aBQt – B (Kt-1)

(8) ln = B[aQt – (Kt-1)]

Equation (8) is the equation of flexible acceleration which explain that net investment is a function of current output as well as output in the past time period with given weight to every output in successfully given time period. This equation is differently from simple acceleration theory of investment
In the above equation this is also shown that relationship between investment and change in output during the same period is not given by the average capital output rate (a), fraction of this ratio B. In this way flexible acceleration is different from simple theory of investment. According to flexible theory of investment business man do not adjusted their capital stock in only current output.

Simply to the current level of demand for their product but to whole pattern of past output. This is the process which is called expected normal output. According to flexible acceleration investment is a function of present as well as fast output. So, A difference must be made between short run marginal capital output ratio and long run equilibrium amount of capital which will be added for each unit of permanent income use in output in an economy with unchanging Technology. we can make a comparison between simple acceleration theory of investment and flexible acceleration theory of investment with the help of diagram: