Question

What is meant by autonomous consumption? Explain with the help of a diagram.

Answer 1

Autonomous consumption refers to the level of consumption expenditure that occurs even when income is zero. It represents the minimum amount of consumption that households or the economy need to maintain, regardless of their income level. This consumption is financed through borrowing or by drawing down past savings, and it persists even if there is no current income. In the Keynesian consumption function, consumption (C) is typically expressed as:

[ C = a + cY ]

Where:

• (a) is the autonomous consumption (the intercept on the consumption axis when income (Y = 0)),
• (c) is the marginal propensity to consume (MPC),
• (Y) is the income.

Thus, autonomous consumption ((a)) is not dependent on current income, whereas (cY) is the induced consumption that rises with increasing income.

• The vertical axis represents consumption.
• The horizontal axis represents income.
• The consumption curve (C) starts at a positive intercept (a) on the consumption axis, indicating autonomous consumption.
• As income increases from zero, consumption rises along the slope determined by MPC.
• At low levels of income, consumption can be greater than income, implying dissaving or borrowing.
• The point where the consumption curve intersects the 45° line (where consumption equals income) is called the breakeven point.
• Beyond this point, consumption is less than income, allowing for saving.

In this figure:

• The intercept (a) on the Y-axis is the autonomous consumption.
• The consumption line (C) rises with income (Y).
• The 45° line represents points where consumption equals income.
• At zero income, consumption is still (a), showing autonomous consumption.