Illustrate the relation between level of …

1. Differences between autonomous investment and induced investment

   <th scope="col">SR. No.</th> <th scope="col" style="text-align: center;">Basis</th> <th scope="col" style="text-align: center;">Autonomous Investment</th> <th scope="col" style="text-align: center;">Induced Investment</th>

   1.	Motive	To promote social welfare, Autonomous Investment is done	Induced Investment is driven by profit motive.
   2.	Sector	It is generally undertaken by the government sector.	It is generally done by the private sector.
   3.	Income elasticity	It is not affected by the changes in income level.	It is affected by the change in the income level.

2. Calculation of equilibrium level of income:

Given,

1. Autonomous consumption = Rs 100
2. Marginal Propensity to Consume = 0.75
3. Investment = Rs 5,000

Since at the equilibrium level, Saving = Investment

Income (Y) = Consumption (C) + Investment (I),

Also, Consumption Expenditure {tex}(C) = \overline { C } + b Y{/tex}
Where, {tex}(\overline C ){/tex} = Autonomous consumption, b = Marginal Propensity to Consume, and Y = Income
So, from the above two relations, we get
{tex}\mathrm { Y } = \overline { \mathrm { C } } + \mathrm { b } \mathrm { Y } + \mathrm { I }{/tex}
Y = 100 + 0.75Y + 5000
Y - 0.75Y = 5100
0.25Y = 5100
{tex}Y = \frac { 5,100 } { 0.25 } = Rs \ 20,400{/tex}
{tex}\therefore{/tex} The equilibrium level of income = Rs 20,400