Investment - Autonomous and Induced Investment
What is investment?
- We often use this term investment when a person buys shares, bonds etc., from the market. BUT by real investment we mean the addition to the stock of physical capital.
- Investment is an addition to the stock of capital goods such as machines, buildings, equipment, tools etc.
Autonomous Investment
TipAutonomous Investment
Autonomous investment refers to the investment which does not depend upon changes in the level of income.
- It depends more on population growth and technical progress than on the level of income.
- Best example to understand autonomous investment is Government development projects undertaken to accelerate economic growth of the country.
- These investment includes expenditures on buildings, dams, roads, canals, schools, hospitals etc.
Induced Investment
TipInduced Investment
Induced investment are those investments which is affected by the changes in the level of income.
- These investments are directly proportional to the level of income. Induced investments are profit or income motivated. \[I=f(Y)\]
- It is income elastic. It increases or decreases with the rise or fall in income.
