Page 90 - DECO402_Macro Economics

Unit-10: Investment Function

Political stability is increase the autonomous and induced investment with direct foreign investment. Notes
The difference between induced and autonomous investment are explain in following table 10.1.
Table 10.1: Difference between Induced and
Autonomous investment

Base Induced investment Autonomous Investment
Profit It depends on the It did not depend on profit.
profit expectations of
entrepreneurs.
Income flexibility The level of induced Autonomous investment is ineffective by
investment increase by the the change in of income level. In other
increment in the level of words, it is totally income flexible. Its
income and it is also truth figure is parallel to X-axis.
vice versa that in other
words, it is flexible for
income. By its become the
positive shield of curve.
field Induced investment do Mostly investment as popular investment
in self investment in the by government is autonomous investment,
form of normal field or self which is inspired by public welfare.
investment, that are depend
on the market rate of interest
and marginal efficiency.
Element Besides the income, induced Autonomous investment is depending on
investment is depending on the social, economic and political situation
innovations, government of country. Its curve is shifts to upward on
policies, integration and the bases of change in technique, search
structure of popularity. new resources, increment in population
Political situation are and budget allotment for investment.
also effected the induced
investment. The instability of
government can do a great
destruction.

5. Private Investment and Public investment

One more important classification of investment, on that bases who is investing, can possible in public
investment and self investment. Now, the big part of total investment in capital economies is doing by
government. Investment is effective by political and social ideas in public field. Government normally
invested in the services of profits, loss, concession and free project like schools, colleges, hospitals,
roads, electricity, gas, water, travel and house for population. That investment is for purchasing the
capital things by public officers like central government, state government, local officers and public
corporations. The profit presenting services are also affected by welfare of society.
In the situation of public investment, the comparison of proceeds of project with their investment cost
is not possible. Public investment decision to select the mostly profitable projects in different project is
based on cost-benefit analysis. For that object, we will heave to decide the social profit and social cost

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