What is an 'Autonomous Investment'

An autonomous investment is an investment in a country that is made without regard to the level of economic growth.

BREAKING DOWN 'Autonomous Investment'

Autonomous investments include inventory replenishment, government investments in infrastructure projects such as roads and highways, and other investments that maintain or enhance a country's economic potential. They do not increase in response to increased growth in gross domestic product (GDP), or shrink in response to economic contractions, indicating that they are not motivated by profit, but rather by the goal of improving societal welfare. The 2009 American Recovery and Reinvestment Act (ARRA) provides many examples of autonomous investment.

Autonomous investments contrast to induced investments, which increase or decrease in response to the level of economic growth. Induced investments aim to generate a profit. Since they respond to shifts in output, they tend to be more variable than autonomous investments; the latter act as an important stabilizing force, helping to reduce volatility in induced investment.

Autonomous and induced investments can be thought of in terms of the marginal propensity to invest: the change in investment expressed as a proportion of the change in economic growth. When that marginal propensity is zero, the investment is autonomous. When it is positive, the investment is induced.

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