What Is Autonomous And Induced Investment?

Analyse the likely effects of a fall in Investment on the economy.

Autonomous investment is motivated by service motive and is independent of margin of profit.  It is income inelastic and as such, it is not influenced by variation in income.  It is not profit oriented and accordingly, it remains unaffected by the variation in income, price, wage, rent, etc.

Autonomous investment is made by the public bodies or by the private bodies (organization or individuals).  Erection of street light poles, by the municipal bodies, construction of high ways and public buildings by the government and construction of private schools, buildings, charitable houses etc. Private organizations are good examples of autonomous investment.

Induced investment refers to the investment which is motivated by the margin of profit.  The higher the margin of profit is, the larger the volume of investment.  In other words, it is profit originated investment and varies with the margin of profit in the like direction.  Margin of profit depends upon other things remaining the same, on the size of income and as such, induced investment is income elastic.  It means that it varies with the increase in the same direction.  As the income rises the investment also rises and ice versa.

Induced investment is always associated with enterprise, may it be taken by the government or the private individuals or organizations.