
RESERVE RATIO: The amount of reserves required by the Federal Reserve System as a ratio of the amount deposits backed by the reserves. Modern reserve ratios are in the range of 13% for checkable deposits. The reserve ratio plays a key role in the deposit multiplier. The simple deposit multiplier is simply the inverse of the reserve ratio. If the reserve ratio is 5%, then the deposit multiplier is 20. It's just that simple.
Visit the GLOSS*arama




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, 20002020. [Accessed: August 13, 2020]. Check Out These Related Terms...               Or For A Little Background...         And For Further Study...               
Search Again?
Back to the WEB*pedia



WHITE GULLIBON [What's This?]
Today, you are likely to spend a great deal of time watching the shopping channel looking to buy either throw pillows for your living room sofa or a hepa filter for your furnace. Be on the lookout for jovial bank tellers. Your Complete Scope
This isn't me! What am I?


Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.


"And while the law of competition may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department. "  Andrew Carnegie, entrepreneur


MPI Marginal Propensity to Invest


Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.
User Feedback

