Google
Saturday 
October 20, 2018 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
M3: The wide-range monetary aggregate for the U.S. economy containing the combination of M2 (currency, checkable deposits, and assorted savings deposits) and large-denomination, institutional near monies. M3 contains financial assets that are relatively liquid, but not quite as liquid as those found in M1 or M2. The near monies added to M2 to derive M3 include large denomination certificates of deposit, institutional money market mutual funds, repurchase agreements, and Eurodollars. M3 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M1 and M2.

Visit the GLOSS*arama


AUTONOMOUS GOVERNMENT PURCHASES:

Government purchases by the government sector that do not depend on income or production (especially national income or gross domestic product). That is, changes in income do not generate changes in government purchases. Autonomous government purchases are best thought of as government purchases that the government sector undertake independent of income. They are measured by the intercept term of the government purchases line. The alternative to autonomous government purchases is induced government purchases, which do depend on income.
Autonomous government purchases',500,400)">government purchases are government purchases by the government sector that are unrelated to and unaffected by the level of income or production. This is one of two basic classifications of government purchases. The other is induced government purchases, government purchases that are based on the level income or production. In other words, government purchases can be divided into: (1) expenditures on final goods which are undertaken by the government sector regardless of the level of aggregate production and (2) an adjustment of expenditures (more or less) that results because aggregate production and income changes.

While autonomous government purchases are unaffected by income and are held constant for the construction of the government purchases line, they are not absolutely constant, they do change. Autonomous government purchases are affected by an assortment of factors and influences--government purchases determinants--such as political preferences and stabilization policies. Changes in these determinants cause changes in autonomous government purchases, which shift the government purchases line as well as the aggregate expenditures line and disrupt whatever equilibrium might exist.

Government purchases expenditures are commonly assumed to be totally autonomous in the introductory analysis of Keynesian economics. That is, any induced government purchases that might realistically exist are ignored. Doing so not only simplifies the analysis, but also places the focus on how and why autonomous government purchases change, and how such changes affect the macroeconomy. More sophisticated, and realistic, analysis then includes induced government purchases.

Autonomous: An Equation

One way to provide an illustration of autonomous government purchases (and the relation to induced government purchases) is with a general linear government purchases equation, such as the one presented here:
G=g+hY
where: G is government purchases, Y is income (or aggregate production), g is the intercept, and h is the slope.

The two key parameters that characterize this government purchases equation are slope and intercept. Autonomous government purchases is indicated by the intercept of the government purchases equation. Induced government purchases is then indicated by the slope.

  • An Autonomous Intercept: The intercept of the government purchases equation (g) measures the amount of government purchases undertaken if income is zero. If income is zero, then government purchases is $g. The intercept is generally assumed and empirically documented to be positive (0 < g). It is conceptually identified as autonomous government purchases.

  • An Induced Slope: The slope of the government purchases equation (h) measures the change in government purchases resulting from a change in income. If income changes by $1, then government purchases change by $h. This slope is generally assumed and empirically documented to be greater than zero, but less than one (0 < h < 1). It is conceptually identified as induced government purchases and the marginal propensity for government purchases (MPG).
Should government purchases be totally autonomous, or at least assumed to be so, then the slope of the government purchases equation is zero (h = 0). In this case, government purchases are equal to $g at all levels of income.

Autonomous: A Line

Government Purchases Line
Government Purchases Line

Another common way to identify autonomous government purchases is with an government purchases line, such as the one presented in the exhibit to the right. The red line, labeled G in the exhibit, indicates government purchases that are completely autonomous. There is no induced government purchases indicated by this line. As such, the slope of the government purchases line is zero (h = 0). The intercept of this horizontal line indicates autonomous government purchases, which is $2 trillion in this exhibit.

For sake of comparison, an induced government purchases line would have a positive slope. And because government purchases are only modestly induced by income and production, an induced government purchases line has a slight slope. A click of the [Induced A Little] button illustrates induced government purchases (with a comparison to the autonomous government purchases line).

Government Purchases Determinants

Autonomous government purchases are most important to Keynesian economics not because they are unaffected by income, but because the ARE affected by a host of nonincome factors, especially government stabilization policies. These nonincome influences on government purchases are termed government purchases determinants.

These determinants, similar to those for other relations in the study of economics, cause a change in the underlying government purchases-income relation. From a graphical perspective, these determinants cause the government purchases line to shift, which effectively means that the intercept of this line changes. More generally, these determinants cause a change in autonomous government purchases.

Two of the more important government purchases determinants are:

  • Political Views: Politicians, often reflecting the preferences of their constitutions, hold a variety of views on government spending. Some favor more spending, others less. Should one set of political views taken over the operation of government, especially the federal government, then autonomous government purchases also change. Big government spenders trigger an increase in autonomous government purchases and small spenders have the opposite effect.

  • Fiscal Policy: One of the most important government purchases determinants is fiscal policy, which is the use of government purchases and taxes to stabilize the business cycle. While fiscal policy interacts with political views, they are often implement to counter the ups and downs of aggregate production. Rather than being induced by income, fiscal policy seeks to increase government purchases when income goes down, and decrease government purchases when income goes up.

Other Autonomous Expenditures

Government purchases are one of four expenditures on aggregate production in the macroeconomy. The other three--consumption expenditures, investment expenditures, and net exports--also have important autonomous components. While autonomous government purchases can be a source of business-cycle instability, the autonomous components of these other expenditures (especially investment) are perhaps more important in Keynesian economics. Autonomous government purchases, through fiscal policy, is undertaken to stabilize and counteract other autonomous sources of instability.
  • Autonomous consumption is key factor in the analysis of business-cycle instability in large part because consumption is the largest of the four expenditures. While business cycle ups and downs are usually attributable to government purchases, more than a few can be traced back to autonomous changes in consumption expenditures. While these autonomous expenditures are unrelated to income, they are influenced by other factors, such as interest rates, consumer confidence, and wealth.

  • Autonomous investment is key factor in the analysis of business-cycle instability. Business cycle ups and downs can often be traced back to autonomous changes in investment expenditures by the business sector. While these autonomous expenditures are unrelated to income, they are influenced by other factors, such as interest rates, technology, expectations, and wealth.

  • Autonomous net exports, the difference between exports and imports, are based on global economic conditions, especially economic activity in other countries. These expenditures by the foreign sector also depend on such things as currency exchange rates, trade agreements, wars and conflicts, or global politics.
Autonomous and induced expenditures work together in the macroeconomy. Autonomous expenditures (usually investment, but also government purchases) set in motion business-cycle instability; they trigger expansions and contractions of the macroeconomy. Induced expenditures (especially consumption) then magnify and accelerate these changes.

<= AUTONOMOUS EXPORTSAUTONOMOUS INVESTMENT =>


Recommended Citation:

AUTONOMOUS GOVERNMENT PURCHASES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: October 20, 2018].


Check Out These Related Terms...

     | induced government purchases | government purchases line | marginal propensity for government purchases | autonomous expenditures | autonomous consumption | autonomous investment | autonomous net exports | intercept, government purchases line | slope, government purchases line | injections | leakages | induced expenditures |


Or For A Little Background...

     | Keynesian economics | circular flow | aggregate expenditures | government purchases | government expenditures | government consumption expenditures and gross investment | macroeconomics | government sector | national income | gross domestic product | taxes | business cycles | determinants |


And For Further Study...

     | aggregate expenditures | aggregate expenditures line | government purchases determinants | Keynesian model | Keynesian equilibrium | injections-leakages model | aggregate demand | paradox of thrift | fiscal policy | multiplier |


Search Again?

Back to the WEB*pedia


APLS

BEIGE MUNDORTLE
[What's This?]

Today, you are likely to spend a great deal of time at a flea market seeking to buy either a wall poster commemorating the 2000 Presidential election or a rechargeable flashlight. Be on the lookout for the happiest person in the room.
Your Complete Scope

This isn't me! What am I?

The first paper currency used in North America was pasteboard playing cards "temporarily" authorized as money by the colonial governor of French Canada, awaiting "real money" from France.
"Failure is the opportunity to begin again, more intelligently. "

-- Henry Ford, automobile manufacturer

FOMC
Federal Open Market Committee
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2018 AmosWEB*LLC
Send comments or questions to: WebMaster