DIFFERENCE BETWEEN INDUCED INVESTMENT AND AUTONOMOUS INVESTMENT//B.A.//M.A.//11TH CLASS//12TH CLASS
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Autonomous Investment can be defined as the outlay of funds on capital formation, which is not dependent on the change in the level of income, interest rate and rate of profit.
Primarily, investment in public utility services such as postal, transport, communication, infrastructure, etc. by the Government falls under this category because the investment made by the government does not rely on the decisional profit or loss.
It is the investment made by the government in any developmental project without concerning its level of economic growth or the future prospects to generate good returns, but with an aim of increasing the level of effective demand, at the time of depression and unemployment.
The amount of autonomous investment is influenced by factors like:
Change in technique
Rise in population
Budget allotted for investment
Weather changes
War and peace conditions
Revolution
Search for new resources.
This means that these are the factors which may shift the slope of autonomous investment upwards or downwards.
Definition of Induced Investment
Induced Investment typically means the spending of funds on fixed assets and stocks, which are needed when the income level and demand for goods rises in an economy.
In simple words, induced investment is that investment that differs according to the income, i.e. the more amount an individual or firm has, the more they will spend.
Key Differences Between Autonomous Investment and Induced Investment
Autonomous Investment means an investment which remains unaffected by the changes in the level of income, rate of interest and rate of profit. On the contrary, induced investment is one which is positively related to the level of income, output and profit.
When it comes to elasticity, autonomous investment is said to be income inelastic, because the volume of autonomous investment remains constant, at all the income levels. As against, induced investment is income elastic, as the quantum of investment increases with the increase in the level of income.
While autonomous investment is unrelated to the national income, induced investment is positively related to national income. This is because, autonomous investment remains unchanged or unaffected by the change in income, but induced investment tends to increase or decrease with the change in the income.
Autonomous investment is undertaken by the government, with social welfare perspective. On the contrary, induced investment is made with a profit motive in mind. It can also be said that it is the profit which induces the investor to invest.
Induced investment is influenced by the endogenous variables such as the price of factors of production, wages, consumer demand, the existing stock of capital, level of stock exchange activity and interest changes. But on the flip side, autonomous investment is affected by exogenous variables, as in innovation, invention, government policy, political stability, growth in population, researches, labour movement, etc.
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