
ADJUSTMENT, SHORTRUN AGGREGATE MARKET: Disequilibrium in the shortrun aggregate market induces changes in the price level that restore equilibrium. If the price level is above the shortrun equilibrium price level, economywide product market surpluses cause the price level to fall. If the price level is below the shortrun equilibrium price level, economywide product market shortages cause the price level to rise. In both cases shortrun equilibrium is restored. You might want to compare adjustment, longrun aggregate market. Price level changes induce changes in both aggregate expenditures and real production. Unlike the longrun aggregate market, changes in the price level can induce changes in shortrun aggregate supply, making it greater or less than fullemployment real production.
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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 consumptionincome 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 propensitytoconsume line or consumption function, can be derived by plotting the consumptionincome 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 

 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 consumptionincome 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 consumptionincome 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 expendituresmore 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 consumptionconsumption 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, 20002023. [Accessed: June 3, 2023]. Check Out These Related Terms...               Or For A Little Background...         And For Further Study...               
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