What is Autonomous Expenditure?
Autonomous expenditure is a kind of compulsory expenditure which is bound to be made irrespective of income. In this type of concept the expenditure occurs at any level, may it be government dues or any kind of payments of an individual. This can also be considered as a good sign for the economy because it is a general understanding that if the autonomous expenditure is high then the output is also high in that year.
Factors that Affect Autonomous Expenditure
There are many factors that affect the autonomous expenditure.
#1 – Savings
The most important factor in autonomous expenditure is the savings an individual has. The person should be well informed about his autonomous expenditure which cannot be avoided and so he should consider his savings for the same. He should understand his capacity and strength in spending the money wisely.
#2 – Borrowings
One very difficult situation arises when an individual is required to take loans to meet his basic needs. When the loans are returned it will be returned with an interest cost added on it which makes it dearer for an individual. Therefore borrowing is also considered as one of the important factors which may affect the autonomous expenditure.
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#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. This expenditure can be considered as a waste for some people but for most people, it is a necessity and therefore it is considered an autonomous expenditure.
#4 – Trade Policies
Not only internal but also some external factors are responsible for autonomous expenditure. Many countries have different trade policies and taxes and to participate in nation-building we have to deal with the foreign exchange to get more returns and now this is the trade policies which is one of the factors that are to be considered while calculating the autonomous expenditure.
How to Calculate Autonomous Expenditure?
The autonomous expenditure is calculated in a statistical manner. The equation to find out the autonomous expenditure is solved by using a graphical representation.
The graph here depicts a straight line that intersects the Income and the expenditure. The line indicates that expenditure is the same irrespective of the income in all stages.
#1 – Government Expenditure
- The government expenditure is the taxes that we all have to pay if we want to live a peaceful life and to continue the business or work without any interruption. There are several taxes which the government has levied say 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 life easy and therefore some money is required to make us available all such facilities which a nation should get like metro or train facilities, public toilets, bridges, highways, expressways, etc. So it 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. expense made to get the food and a 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 requirement of food, shelter, and education for their children. This type of expenditure is again autonomous expenditure since it occurs irrespective of the income.
Difference Between Autonomous Expenditure and Induced Expenditure
- This is 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 avoid the autonomous expenditure.
- On a national level, it doesn’t depend on the Gross Domestic Production level of the country whereas the Induced expenditure is dependent on the Gross Domestic Production level of the nation.
- It can also be said that the autonomous expenditure depends is an expenditure which is made for the basic needs whereas the induced expenditure is made for luxury and that is why it will have to depend upon the income levels.
- It is doesn’t depend upon the real income. It is a basic requirement that is to be met by everyone to live a peaceful life.
- Sometimes the expenditure is so necessary that the person who is required to meet the needs will have to take loans to carry that and then the interest cost is also associated with it.
- This is a somewhat fixed component because it doesn’t vary with any given situation. This will occur in case of recession as well and there is no way to avoid the expenses in that peak hours.
- The autonomous expenses are not only an internal factor but it is also an external factor. Many trade policies and government taxes are levied in such a way the exporters or importer are required to make some extra efforts to hedge their losses in the market because here other nations are also involved.
- 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 along with examples and how to calculate them. You can learn more about from the following articles –