Unit 25

Question 1

What is the accelerator coefficient?

Answer 1

The accelerator coefficient is the capital-output ratio.

Question 2

What is accelerator theory?

Answer 2

The accelerator theory is the theory that the level of investment is related to past changes in income.

Question 3

What are animal spirits?

Answer 3

Animal spirits is business confidence: the mood of managers and the owners of firms about the future of their industry and the wider economy.

Question 4

What is the capital-output ratio?

Answer 4

The capital-output ratio is the ratio between the amount of capital needed to produce a given quantity of goods and the level of output.

Question 5

Define depreciation (of the capital stock) or capital consumption.

Answer 5

This is the value of the capital stock which has been used up or worn out.

Question 6

Define gross investment.

Answer 6

Gross investment is the addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital.

Question 7

Define investment.

Answer 7

Investment is the addition to the capital stock of the economy.

Question 8

Define net investment.

Answer 8

Net investment is gross investment minus depreciation.

Question 9

Define retained profit.

Answer 9

Retained profit is profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation.