Distinguish between Induced investment and Autonomous investment.

Induced Investment and Autonomous Investment. Investment means expenditure on creation of new capital assets. Alternatively, investment is addition to the existing stock of physical (or real) assets like machinery, building, equipment, raw material, etc. which adds to the future productive capacity of an economy. Investment can be induced as well as autonomous.
(i) Induced investment refers to the investment which is made with the motive of earning profit as it is done in private sector. Induced investment depends directly upon profit expectations. It is income-elastic. If national income goes up, induced investment also goes up, i.e., increase in income induces investment. Its reason is that increase in national income leads to an increase in demand for goods and services which raises the expected profitability of producers. Thus producers are induced to make great investments. In short, induced investment takes place when level of income and demand in the economy goes up. That is

Fig. (a)
why induced investment curve, like supply curve is positively sloped, i.e., with increase in income, induced investment also goes up as shown in Fig.(a). According to Keynes, induced investment is determined by (i) MEI or rate of return from new investment, and (ii) rate of interest at which funds are borrowed. Private investment is always induced investment.
(ii) Autonomous investment refers to the investment which is made irrespective of level of income as is generally done in government sector. It is income-inelastic, i.e., it is not affected by change in income level. The volume of autonomous investment is the same at all levels of income. That is why autonomous investment curve is a straight line parallel to X-axis as shown in Fig.(b). Autonomous investment becomes essential when there is depression and level of demand is low and accordingly level of induced investment also becomes low. As a result economy suffers from large scale unemployment of resources. Then it becomes essential for government to make investment in public utility works, construction of railways and roads, changes in nature of consumer demand, increase in population, discovery of new resources, new technology, etc. For instance, government investment in public utilities like construction of railways, roads, post and telegraphs, electricity, etc. is normally autonomous investment.

Fig.(b)

Comparison between Induced and Autonomous Investments:
(i)    Induced investment is income-elastic (i.e., rise in level of national income implies rise in level of investment) whereas Autonomous investment is income-inelastic.
(ii)    Induced investment is positively related to national income but Autonomous investment is unrelated to national income.
(iii) Induced investment is determined by consideration of profit, whereas Autonomous investment is determined by consideration of social welfare.
(iv) Induced investment curve is positively sloped (Fig. (a)) but Autonomous investment curve is horizontal straight line parallel to X-axis, (Fig. (b)) According to Keynes during short period firms plan to invest same amount every year. Ex-ante investment demand (I) may be written as I indicating autonomous (constant demand,  i.e.