Autonomous Consumption

Autonomous consumption (also exogenous consumption) is consumption expenditure that occurs when income levels are zero. Such consumption is considered autonomous of income only when expenditure on these consumables does not vary with changes in income; generally, it may be required to fund necessities and debt obligations. If income levels are actually zero, this consumption counts as dissaving, because it is financed by borrowing or using up savings. Autonomous consumption contrasts with induced consumption, in that it does not systematically fluctuate with income, whereas induced consumption does. The two are related, for all households, through the consumption function:

where

  • C = total consumption,
  • c0 = autonomous consumption (c0 > 0),
  • c1 = the marginal propensity to consume (the gradient of induced consumption) (0 < c1 < 1), and
  • Yd = disposable income (income after government intervention (T) – benefits, taxes and transfer payments – equal to Y – T).

Other articles related to "consumption, autonomous consumption":

Consumption Function
... In economics, the consumption function is a single mathematical function used to express consumer spending ... is used to calculate the amount of total consumption in an economy ... It is made up of autonomous consumption that is not influenced by current income and induced consumption that is influenced by the economy's income level ...
Aggregate Expenditure - Components of AE
... and Keynesian economists use the following components Consumption expenditure (C) Consumption refers to the household consumption over a given period of time ... The total household consumption can be divided into two parts, they are Autonomous Consumption and Induced consumption ... Autonomous Consumption refers to the amount of consumption regardless of the amount of income, hence, even if the income is zero, the autonomous consumption ...

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