Spending out of income is called induced spending. Equivalently, it is known as ‘endogenous’ spending.
This kind of spending rises and falls roughly in line with income. When income rises, households consume more. When income falls, they consume less.
Because some spending is induced, an initial act of autonomous spending will cause a multiplied increase in new spending and new income. This is known as the expenditure-multiplier effect....
heteconomist
Short & Simple 16 – The Expenditure Multiplier and Income DeterminationPeter Cooper
A monetary economy needs spending for production and employment to occur. This is a truism. Spending equals income, by definition. One person’s purchase of a good or service is another person’s income. But it is also clear that causation, ultimately, runs from spending to income. More specifically, the creation of income requires a prior decision to spend. In a monetary economy, to paraphrase Michal Kalecki, each of us in isolation can decide how much to spend but we cannot choose the size of our income. Our personal income will depend not on our own spending but on the spending decisions of others acting somewhat independently of ourselves. Total income, of course, will depend on spending in aggregate – our own spending and the spending of others.…
heteconomist
Some Implications of the Expenditure Multiplier ProcessPeter Cooper
