Difference Between Autonomous Investment and Induced Investment

Edited by Diffzy | Updated on: June 12, 2023


Difference Between Autonomous Investment and Induced Investment

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Spending on the development of new capital assets is what is meant by investment. It is a physical or real asset addition to an economy's current stock that boosts the economy's potential future productivity. Examples of such assets include machinery, structures, machinery, raw materials, and so on. Economically speaking, there are two categories of investment: autonomous investment and induced investment.

Autonomous investment vs Induced investment

Investments that induced change in size about the rate of economic growth, as opposed to autonomous investments, remain constant. Gains are sought after from induced investments. Since they react to changes in output, they are typically more volatile than autonomous investments; the latter serves as a significant stabilizing influence, assisting in lowering the volatility of induced investment.

The price of manufacturing inputs, salaries, customer demand, the amount of capital already on hand, the level of stock market activity, and interest rate changes are just a few examples of endogenous factors that have an impact on induced investment. However, autonomous investment is also influenced by exogenous factors, such as innovation, invention, governmental policy, political stability, population expansion, research, labor movement, etc. Additionally, because induced investments aim to generate profit, they are likely to be more erratic because they respond to changes in economic production. Induced investments, however, can also contribute to economic stability by generating jobs and promoting expansion.

Difference between autonomous investment and induced investment in tabular form

Parameters of comparisonAutonomous investmentInduced investment
MeaningAutonomous investment is frequently associated with factors like fresh resources, population expansion, a rise in the labor force, technological advancements, etc.The form of investment known as an induced investment is linked to present revenue, output, sales, and profit.
Investment curveThe investment curve is a horizontal straight line parallel to X-axis.The investment curve of induced investment is positively sloped.
ElasticityThe investment income is inelastic.The investment income is elastic.
Relation to national incomeThere is no relation between national income and autonomous investment.The national income is positively related to the induced investment.

What is the autonomous investment?

An autonomous investment, as its name suggests, is independent and self-governing. The term "autonomous investment" refers to an investment that is unaffected by the economy's level of income. Autonomous investments are those investments that are done because they are seen to be needed for a person's, an organization's, or a country's well-being, health, and safety. They are made even when levels of available disposable income for investing are zero or nearly so.

Autonomous investment is unaffected by short-term changes in output or income levels. Its origins include institutional considerations, government activities, infrastructure growth, demographic trends, population growth, and the exploration of natural resources. For governments, entrepreneurs, and investors to make educated decisions and advance sustainable economic development, it is essential to understand the factors influencing autonomous investment.

There are many different sources available for autonomous investment which we will discuss as follows:

Government Policies and Initiatives: Policies and programs put forth by the government may result in an independent investment. For instance, financial aid from the government in the form of grants, subsidies, tax breaks, and other means might entice companies to invest in particular areas or industries. Autonomous investment is also influenced by government-led investment initiatives like the construction of public facilities like schools, hospitals, or wind farms.

Loan: Because they make it easier to mobilize unused or idle funds from the public, loans are one of the key sources of public investment. Banks have a lot of money because people deposit it there, and they use that money to lend to customers at interest rates.

Natural resources: Investments in the exploration and extraction of natural resources, such as oil, gas, minerals, and lumber, might be seen as autonomous. Instead of being affected by sudden changes in the economy, these investments are driven by the resources' availability and prospective profitability. Companies engage in infrastructure, research, and exploration to access these resources, which may have long-term economic repercussions.

Deficit financing: Printing new money, or selling government bonds, is referred to as "deficit financing," and it is done to cover the deficit that results from an excess of spending over income. Although one of the simplest autonomous investment strategies, because it will increase the amount of money flowing through the economy, inflation could develop.

Next, we will discuss some of the factors which can influence autonomous investment and can have an impact on these investments. These are as follows:

  • Autonomous investment is influenced by capital accessibility and favorable financing terms. To finance investment projects, companies need financial resources. Businesses are more likely to finance new endeavors or expand their current ones when cash is widely available and reasonably priced.
  • The technology change can also impact autonomous investment. As businesses spend money on innovative technology to boost output, cut expenses, and establish a competitive advantage. New investments in machinery, skilled labor, and infrastructure may be required as a result of technological breakthroughs.
  • Governments frequently put policies into place to support certain industries, R&D, or infrastructural growth, all of which can encourage independent investment. Therefore, the laws and policies of the government greatly affect the investment in autonomous vehicles.

What is induced investment?

Investing that is done because of a shift in consumption or income levels is referred to as induced investment. Profit expectations determine this. When they foresee a big volume of sales of finished goods, entrepreneurs invest in capital goods or produce them. The degree of income and the intensity of consumer demand, as a result, a result determine this expectation. The degree of job satisfaction and customer appetite for consumer products rise in direct proportion to income levels. Investment increases as a result of this.

Profit is the main objective of this type of investing. As a result, companies that engage in them hope to turn a profit in the years to come. Private companies make induced type investments the majority of the time. This is true because producers and businesspeople are motivated by financial gain. For instance, a business might spend money on a new technology they think will succeed in the marketplace. They believe that by making an early investment, they will later benefit from rising demand and greater earnings. An economy's demand for goods and services rises along with its income levels. Private companies are thus encouraged to speed up their commercial operations, maximize earnings by taking advantage of rising demand, and subsequently expand capital stock investments. As a result, profit expectations have a direct impact on induced investments.

National income and induced investment are inversely correlated, meaning that when the former declines, the latter also tends to do so; conversely when the latter rises, the former also tends to do so. In addition to wealth, technical advancements, governmental regulations, integration, and population structure can have an impact on induced investment.

Economic growth is boosted through induced investment. The term "multiplier effect" describes the phenomenon wherein an initial rise in investment spending results in a greater total rise in economic production. Businesses that raise their investment and output also increase the demand for their products and services, which encourages other companies to do the same. As a result, economic activity rises over time in a positive feedback loop. Induced investment's effects on income levels, employment, and economic growth are amplified by the multiplier effect.

According to Keynes, the induced income is usually determined by two factors which are as follows:

  • Marginal efficiency of capital or rate of return from an investment
  • Rate of interest at which funds are borrowed

Marginal Efficiency of Capital: The additional project's highest anticipated rate of return, or the capital asset's cost over its value. They are the Future Yield and Supply Price.

Rate of Interest: The level at which interest will be assessed for the usage of funds is referred to as the rate of interest. The interest must be given up whenever money is put away to buy a capital asset. Based on two elements, the supply, and demand for money determine it. These two elements are liquidity and preference.

Further, we will discuss some of the key aspects of induced investment and their impact on the economy as a whole.

Interest Rates: The level of induced investment is significantly influenced by interest rates. As a result, firms are more likely to make investments in new projects when interest rates are low since they may borrow money for less money. Businesses find it easier and less expensive to pay for their investment projects when rates of interest are low, which results in higher investment spending. In contrast, higher interest rates may deter enterprises from borrowing, which can lead to a decline in investment activity.

Government Policies: Government initiatives can have an impact on induced investment, including tax breaks, subsidies, and grants. By lowering their costs or offering aid for particular projects or industries, these policies might encourage corporations to invest. Businesses may be encouraged to make purchases of clean energy projects by tax incentives, for instance, which apply to investments in renewable energy.

Technological Progress: Progress in technology can stimulate induced investment. New technologies frequently present firms with chances to enhance their manufacturing procedures, boost productivity, and create ground-breaking items. Businesses are more willing to invest in R&D projects or improve their current gear and equipment if they believe that adopting new technology will have benefits.

Main differences between autonomous investment and induced investment in points

  • An investment is considered autonomous if it does not fluctuate in response to changes in revenue, interest, or profit rates. Induced investment, on the other hand, has a positive relationship with output, profit, and income levels.
  • On aggregate demand, autonomous investment has a secondary effect. Businesses that invest independently boost the economy by increasing demand for capital products. contrary to this, induced investment has a direct effect on overall demand. Businesses generate a multiplier effect when they expand production in response to rising demand by making additional investments in projects.
  • Government investment is autonomous and focuses on social welfare. In contrast, induced investment is done so to make money. It is also possible to say that the investor is motivated to invest by the potential for profit.
  • When it comes to the curve, autonomous investments always run parallel to the X-axis, but induced investments have a curve that slopes upward and to the right, showing a positive functional relationship between income and investments.
  • The national income is strongly correlated with induced investment, whereas autonomous investment is unrelated to it. Since autonomous investment is unaffected or unmodified by changes in income, induced investment, on the other hand, tends to rise or fall as a result of income fluctuations.
  • The demand for products and services among consumers is unaffected by autonomous investment; on the contrary, it is affected by it. In contrast, demand is one of the elements that affect induced investment, meaning that if consumer demand increases, investment is undertaken to offer the goods and services needed to meet the demand.


In light of everything that has been discussed above, we can conclude that investment is an utmost component of the economy. For an economy to flourish it needs funds in the form of capital and investment. The investment is of two types, one is an autonomous investment while the other is an induced investment. The autonomous investment includes expenditures for structures such as the construction of dams, roads, passageways, waterways, flyovers, medical facilities, and so on that are built by government entities or private businesses in the economic and social sectors.

The demand for products and services will rise as a result of rising consumption and rising national income, though. As a result, businesses will be forced to expand their supply, which will require them to make investments in capital goods like machinery and plant, which is referred to as induced investment. Both investments are governed by the rules and regulations framed by the Security and exchange board of India (SEBI). Thus, both are secure modes of investment although they are not related to each other.


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"Difference Between Autonomous Investment and Induced Investment." Diffzy.com, 2024. Fri. 23 Feb. 2024. <https://www.diffzy.com/article/difference-between-autonomous-investment-and-induced-investment>.

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