Q.Distinguish between autonomous investment and induced investment, giving one example of each.

Autonomous investment is independent of income (driven by long-term factors); induced investment varies directly with income/output changes.

Autonomous investment does not depend on the current level of income — e.g., a government building a new highway regardless of this year's national income. Induced investment rises and falls with the level of income/output — e.g., a firm buying more machines because rising demand for its product has increased its output.

Autonomous investment is investment that is undertaken WITHOUT reference to the current level of national income or output — it is driven instead by longer-term or structural factors such as population growth, new technological breakthroughs, or deliberate government infrastructure spending. Because it does not respond to income, in a simple two-sector income-determination model, autonomous investment is typically treated as a FIXED constant amount, unaffected by whatever level of income the economy happens to be at.

Example: a state government constructing a new highway or public hospital as part of a long-term development programme — this spending goes ahead according to the government's own budget and planning priorities, regardless of whether national income happens to be higher or lower this particular year.

Induced investment, by contrast, is investment that VARIES DIRECTLY with the level of income or output — as the overall level of economic activity (and hence output) rises, firms across the economy need MORE capital equipment and capacity to actually produce that larger output, so they invest more; as output falls, this need for additional capital falls too, so induced investment falls with it.

Example: a textile factory expanding its number of looms and spinning machines specifically because rising consumer demand has pushed up the quantity of cloth it is selling and producing — the additional investment here is a direct RESPONSE to the factory's own rising output, exactly the relationship the acceleration principle formalises.

The key distinguishing test is always: does this investment decision depend on the CURRENT level of income/output (induced), or would it happen regardless of it (autonomous)?

A common confusion is assuming ALL government investment is automatically "autonomous" and all private-firm investment is automatically "induced" — the correct test is always whether the SPECIFIC investment decision responds to the current income/output level or not; a private firm's investment can also be autonomous (e.g. adopting a wholly new technology regardless of current demand) just as government spending sometimes does respond to economic conditions.