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Autonomous Expenditure (AE)
This is a part of the Keynesian model.
Autonomous expenditure (AE) or autonomous investment (AI) as it is also known, is independent of the level of disposable income
Whatever the level of the disposable income, AE or AI is the investment that will be done in the economy.
Though AE or AI do not depend on income, they do depend on the interest rate.
As the interest rate goes up, AI or AE goes down and vice versa.
It is conceptually similar to autonomous consumption, which is the part of consumption, independent of our income.
Again just like our consumption has two components, so does AE or AI.
We know by the aggregate expenditure model:
Y = C+I+G+ (X-M), or
Aggregate expenditure= C+I+G+ (X-M)
This aggregate expenditure also has two components.
We have autonomous expenditure (AE) that is the part of C+I+G+ (X-M), not dependent on income.
Then we have induced expenditure that is the part of C+I+G+ (X-M) which is dependent on changes in income.
Autonomous expenditure is an expenditure which is independent of the level of income.
It is part of the simple Keynesian income-expenditure model.
Autonomous expenditure is independent of income, but it does determine the level of income.
This is so because changes in the level of autonomous expenditure lead to changes in income in the future.
This contrasts with the concept of induced expenditure, which is dependent on the level of income.
Autonomous expenditures are those components of the economy's aggregate expenditure which are independent of the economy's level of income.
Autonomous expenditure is automatic, necessary and indispensable.
It includes things like government expenditure, exports, our basic living expenses etc.
These are things we cannot do without.
These expenditures have to be borne irrespective of the real income of the economy. In a simple Keynesian model:
AE = A +bY
where AE=aggregate expenditure
A= autonomous expenditure and here A= C+I+G+ (X-M)
B= marginal propensity to consume (MPC)
Y= real national income
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FAQs on Autonomous Expenditure - Macroeconomics - Macro Economics - B Com
| 1. What is autonomous expenditure in macroeconomics? |  |
Ans. Autonomous expenditure refers to the spending by households, businesses, and the government that is not influenced by changes in income or output. It represents the spending that occurs regardless of the current economic conditions or the level of income in the economy. Examples of autonomous expenditure include government infrastructure investments, consumer spending on essential goods, and business investments in new machinery or technology.
| 2. How does autonomous expenditure impact the economy? | |
Ans. Autonomous expenditure plays a crucial role in determining the level of economic activity and overall output in an economy. When autonomous expenditure increases, it leads to an increase in aggregate demand, which stimulates economic growth. Conversely, a decrease in autonomous expenditure can lead to a decrease in aggregate demand, resulting in economic contraction or a recession. Therefore, changes in autonomous expenditure have a significant impact on the overall performance of the economy.
| 3. What factors determine autonomous expenditure? | |
Ans. Several factors determine the level of autonomous expenditure in an economy. These factors include government fiscal policies, such as changes in taxation or government spending, consumer confidence levels, availability of credit for businesses, technological advancements, and overall economic conditions. Changes in any of these factors can influence the level of autonomous expenditure and, consequently, the overall economic activity.
| 4. How does autonomous expenditure relate to the multiplier effect? | |
Ans. Autonomous expenditure is closely related to the multiplier effect. The multiplier effect refers to the concept that a change in autonomous expenditure results in a larger change in the overall output or income of an economy. This occurs because an initial increase in autonomous expenditure leads to increased income for individuals and businesses, which, in turn, leads to higher spending and further increases in output. The multiplier effect magnifies the impact of autonomous expenditure on the economy.
| 5. Can autonomous expenditure be negative? | |
Ans. Yes, autonomous expenditure can be negative. A negative autonomous expenditure indicates that households, businesses, or the government are reducing their spending, which can have detrimental effects on the economy. Negative autonomous expenditure can lead to a decrease in aggregate demand, lower production levels, and potentially a recession. It is important for policymakers to monitor and manage autonomous expenditure to ensure its positive impact on the economy.
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