Question

Distinguish between autonomous consumption and induced consumption.

Answer 1

Autonomous consumption expenditure refers to that portion of consumption expenditure that is independent of the level of the disposable income. That is, irrespective of the level of disposable income, there will be always certain consumption expenditure. At zero level of disposable income, when income is zero, then also there will be some consumption expenditure, as the consumer need to sustain their life. The consumer at zero level of income finances his/her consumption expenditure by the way of borrowings. This part of consumption expenditure is symbolically denoted by (C). The bar over C represents the constant consumption expenditure. It remains constant and same as that of at zero level of income and at very high level of income. 
On the contrary, induced consumption expenditure refers to that portion of consumption expenditure that is dependent on the level of the disposable income. This portion of consumption expenditure shares a positive relationship with the level of disposable income, that is, higher the level of disposable income higher will be the purchasing power, consequently, higher will be the consumption expenditure. This is symbolically denoted by product of small c and disposable income Y_d. That is, cY_d. The c has an important implication. This is also known as Marginal Propensity to Consume.