In 2007, investment in France increased by 7 billion euros, consumption increased by 4 billion euros and government spending increased by 1.5 billion euros. Assume the price level was constant and the economy was at full employment. As a result, suppose that equilibrium expenditure increased by 21 billion euros. In this example, is the induced expenditure and is autonomous expenditure.

Question

Quizplus · Accepted Answer

Induced expenditure is the change in spending that is caused by a change in income. In this case, the increase in equilibrium expenditure is caused by the increase in investment and consumption. Therefore, investment and consumption are the induced expenditure. Autonomous expenditure is the change in spending that is not caused by a change in income. In this case, the increase in government spending is not caused by a change in income. Therefore, government spending is the autonomous expenditure.

In 2007, Investment in France Increased by 7 Billion Euros