What is autonomous consumption, and how does it protect the economy during a recession?
Answer (2)
Autonomous consumption refers to the basic spending that households continue to make, even if their income drops or they are experiencing a financial crisis. This includes essential items like food, rent, medicine, and other daily needs. Unlike luxury spending, autonomous consumption doesn’t stop—even during a recession.In the Philippines, during the COVID-19 lockdowns, many people lost jobs or had lower income. But they still had to buy rice, pay for mobile data for online classes, or purchase medicine. Even if they cut back on eating out or buying clothes, they continued to spend on what was essential. This continued spending helps keep parts of the economy alive.Autonomous consumption protects the economy by ensuring that there is still demand for essential goods and services. For example, sari-sari stores, pharmacies, wet markets, and transport services like tricycles continued to operate because people still needed them. The companies that supply these goods also stay in business, maintaining jobs and economic activity.Governments may support autonomous consumption by providing ayuda or subsidies to help poor families afford their basic needs. When people have at least a small income, they continue to consume, and this prevents a total collapse of the economy.Autonomous consumption acts as a stabilizing force. While it doesn’t grow the economy by much, it keeps the wheels turning when other sectors are in decline.
Autonomous consumption is the level of consumption that occurs even when income is zero. It represents the basic, essential spending households must make to survive—such as for food, housing, and healthcare—regardless of their income. This spending is often financed through savings, borrowing, or government assistance when income is insufficient.How It Protects the Economy During a RecessionStabilizes Demand - During a recession, overall income falls, and people reduce spending. However, autonomous consumption tends to remain relatively steady because it covers necessities. This helps maintain a base level of demand in the economy.Slows the Decline in Output - Since businesses still receive some demand for basic goods and services, they have less incentive to cut production and lay off workers, which helps cushion the economy.Supports the Multiplier Effect - Even small, consistent spending during a downturn can have a ripple effect throughout the economy—supporting jobs and incomes that lead to further spending.
