Introduction to investment function.
- 1. Presentation What is investment ? Type of investment
- 3. Types of investments 1. Autonomous investment 2. Induced investment
- 4. Autonomous Investment Autonomous investment means investment which does not change with the changes in the income level and is therefore independent of income. This autonomous investment includes expenditure on building, dams, roads, canals, schools, hospitals, etc. Since investment on these projects is generally associated with public policy, autonomous investment is regarded as public investment. This autonomous investment depends more on population growth and technical progress than on the level of income.
- 5. Cont… Autonomous investment can be represented diagrammatically as in the figure given below. This means that whatever the level of income investment remains the same.
- 6. Induced investment Induced investment is that investment which is affected by the changes in the level of income. The greater the level of income, the larger will be the consumption of the community. In order to produce more consumer goods, more investment has to be made in capital goods, so that greater output of consumer goods become possible. This induced investment is undertaken both in fixed capital assets and in inventories. The essence of induced investment is that greater income and therefore greater aggregate demand affects the level of investment in the economy.
- 7. Cont… Induced investment can be presented diagrammatically as in the figure given below. The figure shows that as income increases investment also increases and as income decreases investment also decreases.
- 8. Thank You