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.
Autonomous investment is one of the two types of investments i.e. Autonomous investment and Induced investment. Autonomous investments are the investments undertaken by corporate firms without consideration of macro-economic factors especially GDP and national income. The national patterns of income and production do not affect their business decisions, hence making them independent of income factor. However, they are affected by non-income factors such as interest rate, return expectations, capital assets, technology and capital prices.
Autonomous investment is thought to be an investment that the business sector undertakes, no matter what the state of the economy is. Autonomous investment does not induce investment. It is just one of the two basic classifications of investment. The other form or classification is called induced investment. Induced investment is that investment that is dependent on income. When production and income change, some adjustment of expenditures needs to be made, and that adjustment is in the form of induced investment.
Analyse the likely effects of a fall in Investment on the economy.