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.

The consumption line graphically illustrates the consumption-income relation for the household sector, which is the foundation of the aggregate expenditures line used in Keynesian economics to identify equilibrium income and production. 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 intercept of the consumption line indicates the intersection point between the consumption line and the vertical consumption axis. 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.

Autonomous consumption is consumption expenditures by the household sector that are unrelated to and unaffected by the level of income or production. This is best indicated by a zero level of income. While individuals occasionally come face-to-face with autonomous consumption, as their incomes drop to zero due to unemployment, for the aggregate economy autonomous consumption is mostly an unlikely theoretical extrapolation.