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DISEQUILIBRIUM, SHORT-RUN AGGREGATE MARKET: The state of the short-run aggregate market in which real aggregate expenditures are NOT equal to real production, which result in imbalances that induce changes in the price level, aggregate expenditures, and/or real production. In other words, the opposing forces of aggregate demand (the buyers) and short-run aggregate supply (the sellers) are out of balance. Either the four macroeconomic sector (households, business, government, and foreign) buyers are unable to purchase all of the real production that they seek at the existing price level or business-sector producers are unable to sell all of the real production that they have available at the existing price level.
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                           DERIVATION, CONSUMPTION LINE: A consumption line, a graphical depiction of the relation between household sector consumption and income, can be derived from a simple consumption schedule, a table or chart showing the relation between household sector consumption and income. This is easily accomplished by plotting the consumption-income pairs from the schedule as points in a diagram that measures consumption on the vertical axis and income on the horizontal axis, then connection the points with a line. The consumption line can also be derived directly by plotting the consumption function using slope and intercept values. The consumption line, also termed propensity-to-consume line or consumption function, can be derived by plotting the consumption-income combinations from a consumption schedule into a graph. It can also be derived by plotting the mathematical specification of a consumption function using slope and intercept.| Consumption Schedule |  | | | Consumption Line | 
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First up is the consumption schedule. A representative consumption schedule is presented in the upper panel of the exhibit to the right. The two columns in the table measure income and consumption in trillions of dollars.The first column of this table presents total income of the household sector. These values conveniently range from $0 to $10 trillion. The second column then presents the amount of this income the household sector uses for consumption expenditures. These values range from $1 trillion to $8.5 trillion. The derivation of the consumption line involves plotting the consumption-income pairs in the schedule into a diagram, such as the space presented in the bottom panel of the exhibit. This currently blank space measures consumption on the vertical axis and income on the horizontal axis. The consumption-income pairs from the top panel can be plotted in the bottom panel by clicking the [Consumption Line] button. Once all points are plotted, the result is the red consumption line labeled C. The two features of the consumption line are slope and intercept. - Slope: The slope is positive, but less than one. In fact, the slope of the consumption line is numerically equal to the marginal propensity to consume (MPC). In this case the slope is equal to 0.75. The positive slope reflects induced consumption expenditures--more income means more consumption. Click the [Slope] button to illustrate.
- Intercept: The consumption line intersects the vertical axis at a value of $1 trillion. This intersection point is autonomous consumption--consumption expenditures unrelated to income. Click the [Intercept] button to illustrate.
The consumption line can also be plotted directly using the consumption function. The two key bits of information needed for this task are the intercept and the slope. The following linear consumption function can be used to illustrate.where: C is consumption expenditures, Y is income (national or disposable), a is the intercept, and b is the slope.The consumption line can be constructed by simply drawing a line with slope b that emerges for the vertical axis at intercept a.
Recommended Citation:DERIVATION, CONSUMPTION LINE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: May 18, 2024].
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Today, you are likely to spend a great deal of time at the confiscated property police auction looking to buy either galvanized steel storage shelves or a large green chalkboard shaped like the state of Maine. Be on the lookout for slow moving vehicles with darkened windows.
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Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
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"Perhaps the most valuable result of all education is the ability to make yourself do the thing you have to do, when it ought to be done, whether you like it or not; it is the first lesson that ought to be learned; and however early a man's training begins, it is probably the last lesson that he learns thoroughly. " -- Thomas H. Huxley, Scientist
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