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Read and Questions: Macro 3.2-Types of Consumption

Last updated 10 months ago
6 questions
Autonomous consumption is the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for basic necessities. This contrasts with discretionary consumption, which is used for non-essential items. When combined with discretionary income, a person's autonomous consumption determines his or her real income or real wages.

Autonomous consumption is defined as expenditures taking place when disposable income levels are at zero. This consumption is typically used to fund consumer necessities, but it causes consumers to borrow money or withdraw from savings accounts.

Autonomous consumption occurs most often when people are in dire straits and have no income, but still have expenses. Even if a person is broke, he still has basic needs such as food, shelter, utilities, health care and transportation. When a consumer is in this situation, he is forced to spend more money than he earns, which results in dissaving. Such consumers are forced to spend all of their incomes as well as money they don't have, just for necessities. As a result, they have no disposable income.
1

What is autonomous consumption, as it relates to households (HH)?

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At what level of DI does autonomous spending take place?

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Does autonomous spending cause Savings or Dissavings?

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Dissavings takes place when

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Savings takes place when

Induced consumption, on the other hand, differs in that the amount of consumption varies based on income. As disposable income rises, so does the rate of induced consumption. This process applies to all normal goods and services. For induced consumption, disposable income is at zero when induced consumption is at zero. As the value of disposable income rises, it induces a similar rise in consumption. Induced consumption demonstrates the typical phenomenon of how expenditures increase as wealth grows: People begin to enjoy more lavish lifestyles, spending more often, making more purchases and incurring greater expenses.
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The amount of induced consumption is based on what?