Definition of 'Autonomous Expenditure'
Government spending is the largest component of autonomous expenditure. It includes spending on goods and services, transfer payments, and interest payments. Government spending is often used to stimulate the economy during a recession.
Investment is the second-largest component of autonomous expenditure. It includes spending on new capital goods, such as machinery and equipment. Investment is important for economic growth because it increases the productive capacity of the economy.
Net exports is the difference between exports and imports. When exports exceed imports, net exports are positive. When imports exceed exports, net exports are negative. Net exports are affected by a number of factors, including the exchange rate, the level of economic activity in other countries, and government policies.
The sum of government spending, investment, and net exports is called aggregate demand. Aggregate demand is the total amount of goods and services that households, businesses, and governments want to buy at a given price level.
Autonomous expenditure is important because it determines the level of aggregate demand. The level of aggregate demand, in turn, determines the level of output and employment in the economy.
When autonomous expenditure increases, aggregate demand increases. This leads to an increase in output and employment in the economy. When autonomous expenditure decreases, aggregate demand decreases. This leads to a decrease in output and employment in the economy.
Autonomous expenditure is often used to stimulate the economy during a recession. By increasing government spending or reducing taxes, the government can increase aggregate demand and boost economic growth.
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