(i) Induced investment is the expenditure on fixed assets and stocks which are required when level of income and demand in an economy goes up.
(ii) Induced investment is profit motivated. It is related to the changes of national income. The relationship between the national income and induced investment is positive.
(iii) So the wages are more or less rigid rather than flexible.

Duesenberry has made two observations regarding the factors affecting consumption.
a. The consumption expenditure depends not only on his current income but also past income and standard of living.
b. Consumption is influenced by demonstration effect. The consumption standards of low income groups are influenced by the consumption standards of high income groups.

Objective factors are the external factors which are real and measurable. These factors can be easily changed in the long run.

(i) The reason is that as income increases, our wants are satisfied side by side, so that the need to spend more on consumer goods diminishes.
(ii) So, the consumption expenditure increases with increase in income but less than proportionately.

The constant extraneous variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

(i) The multiplier assumes that those who earn income are likely to spend a proportion of their additional income on consumption.
(ii) In practice, people tend to spend their additional income on other items
(iii) Such expenses are known as leakages.

(i) Monetary and fiscal policy
(ii) Technological progress
(iii) Resource availability.

(i) Tax Multiplier
(ii) Employment Multiplier
(iii) Foreign Trade Multiplier
(iv) Investment Multiplier

Positive Multiplier	Negative Multiplier
When an intial increases in an injection leads to a greater final increase in real GDP.	When an intial increases in an injection leads to a greater final decrease in real GDP.

Muliplier is the ratio of the change in national income to change in Investment.
K = \(\frac{ΔY}{ΔI}\)

MPS is the ratio of change in saving to a change in income
MPS = \(\frac{ΔS}{ΔY}\)

APC is the ratio of consumption expenditure to any particular level of income
APC = \(\frac{C}{Y}\)

 

It is the proportion of disposable income which individuals spend on consumption.

(i) The consumption function or propensity to consume refers to income consumption relationship.
(ii) It is a "functional relationship between two aggregates viz., total consumption and gross national, income".