Reviewed by Sep 30, 2020| Updated on
An autonomous expenditure refers to necessary expenditure. You may think that all spending is important, but in macroeconomic terms, it's the expenditure that has to be made for food, housing, clothes, or anything else where the need doesn't change regardless of what your income is.
For example, if you had no money, you would still need food, and you would satisfy it somehow by borrowing or stamping food.
At the level of government, autonomous expenditure is all necessary to run the country, such as roads, buildings, health and human services, housing, security, defence, etc. Most of the tasks are needed to carry on for that year, no matter how high or small the tax collections were.
Autonomous expenses are expenditures from the four macroeconomic sectors (household, industry, government, and foreign) that are unrelated to the level of income or production and are not influenced by it.
In the unlikely event that income falls to zero, autonomous investments can be viewed as a baseline or minimum rates of expenditure performed by the four industries. They can be called expenses that are kept constant when the line of aggregate expenditures is formed.
While autonomous expenditures are unaffected by income and are held constant for the spending of the aggregate expenditures line, they are not absolutely constant, and they do change. Autonomous expenditures are affected by aggregate expenditures determinants, such as interest rates, fiscal policy, foreign currency exchange rates and consumer confidence.
Changes in the determinants cause changes in autonomous expenditures, which shift the aggregate expenditures line and disrupt whatever equilibrium might exist.
Autonomous and induced expenses interact in a particular way when the aggregate expenditure determinants disturb the equilibrium. A change in the determinants triggers a change in autonomous expenditure, and it is expressed by a shift in the line of aggregate spending. This move is upsetting the existing balance.
Equilibrium is then restored by a change in induced spending, which is defined as a step along the path of aggregate expenditures.