investment schedule

Investment scheduleclick for a larger image
Fig. 101 Investment schedule.

investment schedule

a schedule that depicts the relationship between INVESTMENT and the level of NATIONAL INCOME. In the short and medium term, the investment schedule would tend to have a positive slope and a positive intercept with the vertical axis, as indicated by the solid line in Fig. 101 insofar as some investment (autonomous investment) will take place even when national income is zero.

As shown in Fig. 101, the investment schedule is made up of a number of elements:

  1. Autonomous investment, which is related to non-income factors such as technological change and cost-cutting, will be undertaken irrespective of the level of income.
  2. Replacement investment, which is required to maintain the economy's existing capital stock and which tends to vary in line with changes in levels of national income insofar as a greater amount (in absolute terms) of replacement investment is required to maintain the economy's existing capital stock as national income and output rise, viz:
  3. Induced investment, which takes place as rising demand puts pressure on existing capacity and raises profitability, thereby encouraging businesses to invest more. Thus, the more rapid the rate of growth of national income, the higher the level of induced investment. See ACCELERATOR, EQUILIBRIUM LEVEL OF NATIONAL INCOME.

national income

capital stock

replacement investment

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