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Macro Economics




                    Notes              Net Investment: gross investment minus replacement investment.
                                       Ex-ante Investment: investment which is intended or planned.
                                       Ex-post Investment: actual or realised investment.
                                       Autonomous Investment: investment taken generally for social welfare. It is independent
                                       of income, output or profit.
                                       Induced Investment: investment induced by a change in level of income or output.
                                   Private business investment is often divided into two categories:
                                       Autonomous investment
                                       Induced investment
                                   Investment which is brought about by any changes in the level of income (i.e., GNI) or output
                                   (i.e., GNP) is called induced investment. However, major portion of private investment does not
                                   depend on national income or output.


                                          Example: Suppose a new invention of 3D television becomes popular. It is quite likely
                                   that business firms will make investment in developing the new product even if there had been
                                   no prior change in national or per capita income.
                                   This investment which is independent of national income or its rate of change is called autonomous
                                   investment.

                                       !
                                     Caution  Thus investment which depends on national income or its rate of change is called
                                     induced investment. On the other hand, investment which depends on all other variables
                                     except national income is called autonomous or income independent investment.




                                     Notes  In his income and employment theory, JM Keynes considered only autonomous
                                     investment. He ignored induced investment because he was concerned with the economic
                                     problems  of depreciation. During  depression national  income tends  to fall  steadily.
                                     Therefore induced investment is unlikely to occur.
                                     However in 1917, J.M. Clark developed the famous acceleration principle on the basis of
                                     the concept of induced investment.

                                   Self Assessment

                                   Multiple Choice Questions:
                                   1.  Investment is a ..................... variable.
                                       (a)  Stock
                                       (b)  Flow

                                       (c)  Stable
                                       (d)  Steady
                                   2.  ..................... investment is the total addition to the capital stock.
                                       (a)  Gross
                                       (b)  Net



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