Autonomous expenditure
Topic: Aggregate Demand, Income Determination and the Multiplier · NCERT: Class 12, Ch 4 "Determination of Income and Employment"; Class 12, Ch 5 "Government Budget and the Economy"; Class 12, Ch 6 "Open Economy Macroeconomics"
Meaning
Autonomous expenditure is all spending that does not depend on income. It is written as Ā. In a two-sector economy, Ā = C̄ + Ī (autonomous consumption plus autonomous investment). When government and foreign trade are added, it also includes government spending, transfers and exports. Aggregate demand is AD = Ā + cY. A change in Ā shifts the AD line in parallel. Through the multiplier, it changes equilibrium income by a larger amount: Y* = Ā/(1 − c).
Example
With C = 40 + 0.8Y and I = 10, Ā = 50, so Y* = 50/0.2 = 250. If a rise in public capital spending lifts Ā by 10, income rises by 50.
Don't confuse with
- Induced expenditure: this is spending that rises with income, such as cY. It changes the slope of the AD line, not its intercept.