What is Autonomous Expenditure?

Autonomous expenditure is a compulsory expenditure bound to be made irrespective of an individual’s income. In this concept, the spending can occur at any level, whether government dues or an individual’s payments. This can also be considered a good sign for the economy because it is a general understanding that if the autonomous expenditure is high, the output is also high in that year.

Factors that Affect Autonomous Expenditure

Many factors affect autonomous expenditure, such as:

#1 – Savings

The most important factor in autonomous expenditure is the savings an individual has. Since autonomous expenditure cannot be avoided, individuals should consider their savings. Furthermore, we should understand our capacity and strength in spending money wisely.

#2 – Borrowings

One very difficult situation arises when an individual takes loans to meet their basic needs. When the loans are returned, they add an interest cost, making it dearer for an individual. Therefore borrowing is also considered as one of the important factors which may affect autonomous expenditure.

#3 – Government Factors

The government also plays a very vital role in considering autonomous expenditure. The expenditure is made for the people to make our nation better in many respects, for example, road repairs, bridge construction, metro and train facilities, etc. This expenditure can be considered a waste for some people, but it is a necessity for most people, and therefore it is considered an autonomous expenditure.

#4 – Trade Policies

Not only internal but also some external factors are responsible for autonomous expenditure. For example, many countries have different trade policies and taxes. Moreover, to participate in nation-building, we have to deal with the foreign exchangeForeign ExchangeForeign exchange, or Forex, is trading one currency for values equivalent to another currency.read more to get more returns. Thus, the trade policy is one factor to consider while calculating autonomous expenditure.

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How to Calculate Autonomous Expenditure?

The autonomous expenditure is calculated statistically. Then, the equation to find out the autonomous expenditure is solved using a graphical representation.

The graph here depicts a straight line that intersects the income and the expenditure. The line indicates that expenditure remains the same irrespective of the income in all stages.

Examples

#1 – Government Expenditure

  • Government expenditure includes the taxes all have to pay to live a peaceful, uninterrupted life. There are several taxes which the government has levied, for example, minimum income tax, property tax, road taxes, water taxes, etc.We all have to deal with it irrespective of our incomes or profits. Since the government is also making a huge effort to make our daily lives easy, money is required to make all such facilities that a nation should get, like metro or train facilities, public toilets, bridges, highways, expressways, etc., available to us. It, thus, comes under autonomous expenditure.

#2 – Basic Needs for a Living

The most important example of autonomous expenditure is the basic needs of all human beings, i.e., expenses made to get the food and shelter to live. All are working hard to eat well and live a good life, but these things are not easily achievable; an individual has to work very hard to achieve their family’s basic food, shelter, and education for their children. This type of expenditure is again autonomous since it occurs irrespective of the income.

Difference Between Autonomous Expenditure and Induced Expenditure

  • Autonomous expenditure doesn’t have to depend upon the income level, whereas the induced expenditure varies with each drop or rise in income.The induced expenditure can be avoided, but there is no scope to prevent the autonomous expenditure.On a national level, autonomous expenditure doesn’t depend on the gross domestic production level of the country. In contrast, the induced expenditure depends on the nation’s GDP level.Autonomous expenditure depends on an expense made for basic needs. In contrast, the induced expenditure is made for luxury, depending on income levels.

Conclusion

  • Autonomous expenditure doesn’t depend upon real income. It is a basic requirement that everyone should fulfill to live a peaceful life.Sometimes, expenditures become so necessary that the person required to meet the needs will have to take loans to carry that, and the interest cost is also associated with it.This is somewhat a fixed component because it doesn’t vary in any given situation. This will occur in case of recession, and there is no way to avoid the expenses in those peak hours.Autonomous expenses are an internal factor and an external factor. Many trade policies and government taxes are levied so that the exporters or importers make extra efforts to hedge their losses in the market because other nations are also involved here.Therefore, to sum up, it is always advisable to check the income and the savings because these are the important factors in any economy.

This has been a guide to What is Autonomous Expenditure & its definition. Here we discuss the factors that affect autonomous expenditure and examples and calculate them. You can learn more about from the following articles –

  • Labor Theory of ValueAncillary RevenueWithholding Tax CalculationDeveloped Economy DefinitionExpenditure Approach for GDP Examples