J.R. Hicks, Harrod and Hansen sought to explain the cyclical fluctuations through the interaction of the multiplier and the accelerator. According to Hicks, cyclical fluctuations are a problem of a dynamic economy. He formed his opinion on the following assumptions:

1) Consumption is a function of income C = f(Y) and Induced investment is a function of output. 2) Role of autonomous investment increases at a constant rate in the long run. 3) There is a limit to the expansion of an economy while there is no specific limit to a phase of contraction, and that the values of the multiplier and accelerator are the same respectively.

Based on these assumptions Hicks says that a dynamic economy moves on a dynamic equilibrium path.

Autonomous investment increases the investment level in the country and consequently consumption increases due to the operation of the multiplier. In order to produce consumer goods to meet the additional demand for consumption induced investment increases due to which the accelerator comes into operation. Hence, the National Income increases.

As a result of the consumption expenditure going up again the National Income increases due to the interaction of multiplier and accelerator. Thus, the economy expands and reaches the full employment level. However, such a level cannot be maintained for long because the induced investment will only increase so long as the output increases, but as we already know that at full employment level it is not possible to increase the output level. Inadequately investment leads to a fall in the income and output level, thus, the economy starts facing a recession.

The income and output level tends to fall even further due to the reverse operation of the multiplier which occurs during contraction phase and that induced investment may be zero, furthermore, the acceleration process becomes very low. This latter phenomenon is useful for an economy in a depression period as it enables the economy to attain an equilibrium position. Thus, the economy does not collapse totally.

Since autonomous investment increases at a constant rate, the multiplier comes into operation and increases the National Income to a multiple extent; and as a result consumption expenditure increases and induced investment and accelerator, National Income increases and the economy revive.

This theory brings focus real economic factors to show business fluctuations but ignores the role of the monetary factors particularly the role of bank credit in cyclical fluctuations. It emphasizes on investment but neglects the concept of MEC which is a major determinant of investment. The value of the multiplier is assumed to remain constant in the theory, but this is not so. It does not change as MPC changes with the passage of time. The concepts of the multiplier and the accelerator have many limitations in the process of their application in real life. It is quite unrealistic to assume that autonomous investment remains the same over a long period of time.