Differentiate between Induced and Autonomous Investments. Why governments try to boost the autonomous investment?

Published: February 6, 2016

Model Answer:
Induced investment is that investment which is governed by income and amount of profit in return i.e. higher profit may lead to higher investment and vice versa. Autonomous investment is that investment which is independent of the level of income or profit and is not induced by any changes in the income. It is based on social investment gaining long term financial return and social good, it includes introduction of new techniques of production and resources.
“Induced Investment” is highly volatile, but its volatility is reduced by autonomous investments, which provides stability to the economy. The autonomous investment can be increased and decreased any time, notwithstanding the changes in income or profit. Since, the autonomous investment is not determined by consideration of profit and is determined by consideration of the social welfare earning long term social good to people. So, during the times of economic depressions, the governments try to boost the autonomous investment. Thus; autonomous investment is one of the key concepts in welfare economics.

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