Question

Investment is described as 'autonomous' in the two-sector model. This means:

Options

• Investment remains the same at all income levels

• Investment depends on the marginal propensity to consume

• Investment rises proportionately with the price level

• Investment equals aggregate supply at equilibrium

Answer 1

Autonomous investment means that investment \[I = \overline{I}\] remains the same at all income levels. It does not vary with income, which is why it is depicted graphically as a horizontal line at height \(\overline{I}\) above the horizontal axis.