Question

Consumption expenditure that remains unchanged even when income changes is known as:

• A. Induced Consumption
• B. Autonomous Consumption
• C. Productive Consumption
• D. Intermediate Consumption

Hint:

Even if you have zero income, you still need to eat! Autonomous consumption is usually funded by "dissaving" (spending past savings) or borrowing.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
According to Keynes, consumption expenditure consists of two components: one that depends on income and one that is independent of income.
Step 2: Key Formula or Approach:
The Consumption Function is expressed as:
\[ C = \bar{c} + bY \]
Where:
\( C \) = Total Consumption
\( \bar{c} \) = Autonomous Consumption
\( b \) = Marginal Propensity to Consume (MPC)
\( Y \) = National Income
Step 2: Detailed Explanation:
Autonomous Consumption (\( \bar{c} \)) is the level of consumption that exists even when income is zero. It represents basic needs like food and shelter. It is funded by past savings or borrowing.
Induced Consumption (\( bY \)) is the portion of consumption that increases as income rises.
Options (C) and (D) are related to production and types of goods, not the consumption function in macroeconomics.
Step 3: Final Answer:
The consumption expenditure independent of income level is called Autonomous Consumption.