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:
In the consumption function $C = \bar{c} + bY$, consumption is divided into two parts: one that depends on income ($Y$) and one that does not.

Step 2: Detailed Explanation:

• Autonomous Consumption ($\bar{c}$): This is the minimum level of consumption required to survive (food, shelter) even if the income is zero. It is independent of the level of income.
• Induced Consumption ($bY$): This is the portion of consumption that increases as income increases.

Step 3: Final Answer:
Consumption that is independent of income is called Autonomous Consumption.