Autonomous Expenditure

Published Dec 23, 2022

Definition of Autonomous Expenditure

Autonomous expenditure is defined as spending that is not affected by changes in income. That means it is independent of the level of income and remains constant regardless of the economic situation. Autonomous expenditure is also known as autonomous consumption or autonomous investment.

Example

To illustrate this, let’s look at a family of four. They have a monthly income of USD 4,000. Every month, they spend USD 1,000 on rent, USD 500 on food, and USD 200 on utilities. That means their total autonomous expenditure adds up to USD 1,700.

Now imagine the family’s income increases to USD 5,000. Even though their income has increased, their autonomous expenditure remains the same. That means they still spend USD 1,000 on rent, USD 500 on food, and USD 200 on utilities. As a result, their total autonomous expenditure is still USD 1,700.

Why Autonomous Expenditure Matters

Autonomous expenditure is an important concept in macroeconomics. It helps economists to understand how changes in income affect the economy. That’s because it shows that not all spending is affected by changes in income. That means even if income increases, some spending will remain the same. This is important to understand because it helps economists to predict how changes in income will affect the economy.