ECON 0110 Lecture Notes - Fiscal Multiplier, Autonomous Consumption, Parsec
Document Summary
Autonomous spending is any spending which is not induced by, or influenced by, the level of income or the size of the economy. Induced spending is any increase in the level of spending that is related to an increase in the level of income or the size of the economy. This could involve an increase in consumption spending, investment spending, government spending, or foreign spending. Suppose the stock market rises, so consumers decide to buy more cars. Suppose interest rates decline so a corporation decides to borrow money and builds a new factory. Suppose the federal government decides to build a new highway. Suppose the chinese economy booms and foreigners decide to buy more american cars or make more visits to. When autonomous spending increases, some sector of the economy is purchasing more than it did before, and this causes an increase in output. This increase in output causes an increase in the incomes of the workers producing the output.
