Question

Which statement correctly describes induced investment as income-elastic?

Options

• It remains the same whether the economy is booming or in recession

• It is always equal to replacement investment

• It does not depend on the level of income or profit

• As national income rises, induced investment rises; as income falls, it falls

Answer 1

Induced investment is income-elastic because it responds to national income. It rises with rising income and falls when income falls.