Excess capacity refers to the situation when a firm is producing below its maximum potential output. It occurs when a firm has the ability to produce more goods or services than it currently is. On the other hand, the acceleration principle is an economic theory that suggests that changes in investment are directly related to changes in the rate of growth of national income or output. According to the acceleration principle, an increase in national income or output will lead to an increase in investment, while a decrease in national income or output will lead to a decrease in investment.

Excess capacity and investment have an inverse relationship according to the acceleration principle. When there is excess capacity in the economy, it means that firms are not utilizing their full production capacity. This indicates that there is a lack of demand for goods and services in the economy. As a result, firms are less likely to invest in new capital goods or expand their production capacity because they do not have the need to produce more goods.

- Excess capacity reduces investment demand:
When firms have excess capacity, they are not operating at their full potential. This means that they have spare capacity to produce more goods, but there is no demand for these additional goods. As a result, firms are less likely to invest in new capital goods or expand their production capacity because they do not have the need to produce more goods. This reduction in investment demand leads to a decrease in overall investment in the economy.

- Excess capacity increases the capital-output ratio:
When firms have excess capacity, it means that they are producing below their maximum potential output. This indicates that they are not fully utilizing their existing capital goods. As a result, the capital-output ratio, which measures the amount of capital required to produce a given level of output, increases. This is because the same level of output is being produced with less capital. An increase in the capital-output ratio indicates inefficiency in the use of capital goods.

To summarize, excess capacity reduces investment demand according to the acceleration principle. When firms have excess capacity, they are not operating at their full potential, indicating a lack of demand for goods and services. This leads to a decrease in investment as firms do not have the need to invest in new capital goods or expand their production capacity. Additionally, excess capacity increases the capital-output ratio, indicating inefficiency in the use of capital goods.