Autonomous investment, also known as exogenous investment or induced investment, is a concept in macroeconomics that refers to a type of investment that is not influenced by changes in the level of income or output in an economy. It represents the level of investment that would occur even if there were no changes in aggregate demand or economic activity. Autonomous investment is often contrasted with induced investment, which is influenced by changes in factors such as consumer spending, business expectations, and government policies. It is the investment that is done by the government, or a body controlled by it, of the country with the motive of social welfare and long term economic growth. It is independent of all economic forces like income or profits. For example, construction of roads, flyovers, etc.
Autonomous investment typically includes expenditures on items that are considered essential for the functioning and maintenance of a business, regardless of the current state of the economy. This can include replacement of obsolete equipment, maintenance of existing facilities, and investments necessary for regulatory compliance. These investments are made to ensure that a business can continue its operations efficiently and do not depend on the current level of economic activity
Induced investment
Induced investment is the one that is done with the motive of increasing income and profits. Unlike the autonomous investment, induced investment is affected by economic and market forces like price of raw material, interest rates, etc. There is a positive relationship between income/profit of the firm and the induced investment, meaning, a rise in the former causes a rise in the latter too.
Understanding the distinction between autonomous and induced investment is important in macroeconomics because it helps analyze the factors that drive changes in aggregate demand and economic fluctuations. Policymakers often use this understanding to formulate economic policies that can stabilize and stimulate the economy during periods of recession or economic downturns.