The purpose of the consumption line is to graphically illustrate the basic consumption-income relation for the household sector, which is the foundation of the aggregate expenditures line used in Keynesian economics.

Two basic types of consumption are indicated by the consumption line. Autonomous consumption is the vertical intercept, or Y-intercept, of the consumption line. Induced consumption is the slope of the consumption line. Of no small importance, the slope of the consumption line is also the marginal propensity to consume (MPC).

Consumption Line

A representative consumption line is presented in the exhibit to the right. This red line, labeled C in the exhibit is positively sloped, indicating that greater levels of income generate greater consumption expenditures by the household sector. This positive relation corresponds to the fundamental psychological law of Keynesian economics.

For reference, a black 45-degree line is also presented in this exhibit. Because this line has a slope of one, it indicates the relative slope of the consumption line.

The two primary characteristics of the consumption line are slope and intercept:

• Slope: The slope of the consumption line presented here is positive, but less than one. In fact, the slope of the consumption line is numerically equal to the marginal propensity to consume. In this case the slope is equal to 0.75. The positive slope reflects induced consumption expenditures--more income means more consumption. It also reflects the basic Keynesian psychological law. Click the [Slope] button to illustrate.


• Intercept: The consumption line intersects the vertical axis at a value of $1 trillion. Theoretically, this is a minimum "baseline" level of consumption, the amount of consumption undertaken even if income falls to zero. More to the point, this intersection indicates autonomous consumption--consumption expenditures unrelated to income. Click the [Intercept] button to illustrate.