Autonomous Investment ● Investment that is not dependent on the national income ● Mainly done with the welfare motive and not for making profits ● Examples : Construction of roads, bridges, Schools, Charitable houses, etc ● Not affected by rise in raw materials or wages of workers ● Essential to development of nation and out of depression - - Consumption and Investment Functions This investment is independent of economic activity. Autonomous investment is income-inelastic, the volume of autonomous investment is the same at all levels. The autonomous investment curve is horizontal, parallel to X axis. Generally, Government makes autonomous investment because of the welfare consideration.
Income I I’ x Investment Autonomous Investment Figure. . y In the times of economic depression, the governments try to boost the autonomous investment. Thus, autonomous investment is one of the key concepts in welfare economics.
ii) Induced investment: Induced investment is the expenditure on fixed assets and stocks which are required when level of income and demand in an economy goes up. Induced investment is profit motivated. It is related to the changes of national income. The relationship between the national income and induced investment is positive; decreases in national income leads to decrease in induced investment and vice versa.
Induced investment is income elastic. It is positively sloped as shown here. I d GNP Induced Investment Investment Figure. .
y x Sl. No Autonomous Investment Induced Investment Independent Planned Income inelastic Income elastic Welfare motive Profit Motive . . Determinants of Investment Function The classical economists believed that investment depended exclusively on rate of interest.
In reality investment decision depends on a number of factors. They are as follows: - - Consumption and Investment Functions . Rate of interest . Level of uncertainty .
Political environment . Rate of growth of population . Stock of capital goods . Necessity of new products .
Level of income of investors . Inventions and innovations . Consumer demand . Policy of the state .
Availability of capital . Liquid assets of the investors However, Keynes contended that business