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

G

=

g

+

hY

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).

Autonomous: A Line

Government Purchases Line

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

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

• 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.