Suppose the full employment level of income is $1,200 billion, and the present level of income is $1,000 billion.Which of the following describes autonomous expenditure under these circumstances?
A) Autonomous expenditure is at full employment equilibrium.
B) Autonomous expenditure is too low for a full employment equilibrium.
C) Autonomous expenditure is too high for a full employment equilibrium.
D) Autonomous expenditure is the difference between the present level of income and the full employment level of income.

Question

Suppose the full employment level of income is $1,200 billion, and the present level of income is $1,000 billion.Which of the following describes autonomous expenditure under these circumstances?  
A) Autonomous expenditure is at full employment equilibrium. 
B) Autonomous expenditure is too low for a full employment equilibrium. 
C) Autonomous expenditure is too high for a full employment equilibrium. 
D) Autonomous expenditure is the difference between the present level of income and the full employment level of income.

Quizplus · Accepted Answer

Autonomous expenditure refers to the sum of all consumption, investment, and government purchases that are not influenced by changes in income levels. In this scenario, the full employment level of income is higher than the present level of income, which means that there is a recessionary gap. Therefore, an increase in autonomous expenditure is needed to reach a full employment equilibrium. Since choice B states that autonomous expenditure is too low for a full employment equilibrium, it is the correct answer.

Suppose the Full Employment Level of Income Is $1,200 Billion