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 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.

C

=

a

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bY