In going from the simple to the flexible accelerator,j is set at ________,and v* is ________.

Question

Quizplus · Accepted Answer

In the simple accelerator model, the accelerator coefficient (j) is assumed to be constant and equal to one. In contrast, the flexible accelerator model allows for a more realistic assumption that the accelerator coefficient (j) is less than one, reflecting the fact that firms may not need to invest in new capital goods in a proportional way with changes in output.

Moreover, in the flexible accelerator model, the desired capital stock (v*) is allowed to vary, which also makes it a more realistic representation of investment behavior. Firms may adjust their desired capital stock depending on changes in the economic environment, such as interest rates, technology, or market conditions.

Therefore, the best choice is E, where j is set at less than one and v* is allowed to vary.

In Going from the Simple to the Flexible Accelerator,j Is