AUTONOMOUS EXPENDITURES: Expenditures on aggregate production by the four macroeconomic

sectors that do not depend on income or production (especially national income or even gross domestic
product). That is, changes in income do not generate changes in these expenditures. Each of the four
aggregate expenditures--consumption, investment expenditures, government purchases, and net exports-has an autonomous component. Autonomous expenditures are affected by the ceteris paribus aggregate
expenditures determinants and are measured by the intercept term of the aggregate expenditures line. The
alternatives to autonomous expenditures are induced expenditures, expenditures which do depend on
income.
Autonomous expenditures are expenditures by the four macroeconomic sectors (household, business,
government, and foreign) that are unrelated to and unaffected by the level of income or production.
Autonomous expenditures can be thought of as baseline or minimum levels of expenditures undertaken by
the four sectors in the unlikely event that income falls to zero. Or they can be thought of as expenditures
that are held constant when the aggregate expenditures line is constructed.
This is one of two classifications of aggregate expenditures. The other is induced expenditures, aggregate
expenditures that are based on the level income or production. In other words, aggregate expenditures
can be divided into: (1) a minimum or baseline amount of expenditures which, in theory, would be
undertaken even if the economy had no income and (2) additional expenditures that result from the income
available to the economy.
While autonomous expenditures are unaffected by income and are held constant for the construction of the
aggregate expenditures line, they are not absolutely constant, they do change. Autonomous expenditures
are affected by aggregate expenditures determinants, such as interest rates, consumer confidence, fiscal
policy', 500,400)">fiscal policy, and foreign currency exchange rates. Changes in these and other
determinants cause changes in autonomous expenditures, which shift the aggregate expenditures line and
disrupt whatever equilibrium might exist.
Autonomous and induced expenditures interact in a specific way when equilibrium is disrupted by the
aggregate expenditures determinants. A change in the determinants causes a change in autonomous
expenditures, which is reflected by a shift in the aggregate expenditures line. This change disrupts the
existing equilibrium. Equilibrium is then restored by a change in induced expenditures, which is indicated
as a movement along the aggregate expenditures line.
Four Expenditures All four of the aggregate expenditures have autonomous components

Consumption Expenditures: These are expenditures by the household sector on everything from
apple juice to zirconium earrings. While the household sector bases most expenditures on available
income (induced consumption), it is likely to undertake a minimum level of expenditures should
income fall to zero. These are autonomous consumption expenditures. They are affecting by such
things as interest rates, consumer confidence, and wealth.

Investment Expenditures: These are expenditures by the business sector on productive capital
goods. A modest amount of investment expenditures are induced by income, but the autonomous
portion of investment tends to be more important. Autonomous investment are those expenditures
on capital that depend on interest rates, technological innovations, and expectations. Changes in
autonomous investment expenditures are a prime source of business-cycle instability.

Government Purchases: These are expenditures by the government sector on the vast array of
goods and services that it uses to perform its designated duties. Like investment, a modest amount
of government purchases are induced by income, especially those undertaken by state and local
governments. However, the bulks of government purchases are autonomous and depend on factors
such as fiscal policy and politics. Autonomous government purchases are a business cycle
stabilization tool.

Net Exports: These are the difference between exports and imports and are the net expenditures on
domestic production by the foreign sector. While imports, like consumption expenditures, have a
significant induced component, some imports and all exports are autonomous. As such, net exports
depend on non-income factors such as foreign currency exchange rates, global economic
conditions, and foreign political activity.