Question
What do you understand by 'parametric shift of a line'? How does a line shift when its:
- Slope decreases,
- Its intercept decreases?
✓
Answer
Movement along a curve vs shift of a curve. Let $\text{C}=\bar{\text{C}}+\text{bY}$ be the consumption function Also Let $\bar{\text{C}}=5$ and b = 0.75 Thus, C = 5 + 0.75Y Consider two situations:
Thus, when slope changes, there is parametric shift in the curve. When intercept changes, there is parallel shift in the curve.
- When b decreases: b is the slope of the consumption curve. When b increases from 0.75 to 0.5, then consumption curve (which is a straight line) pivots downwards. This is called a parametric shift of a graph. It is shown in the given figure:
- When $\bar{\text{C}}$ decreases: It is the autonomous part of the consumption function. It graphically gives the intercept of the consumption curve. If decreases from 5 to 3, there will be parallel downward shift in the consumption curves. It is shown in the given figure:
Thus, when slope changes, there is parametric shift in the curve. When intercept changes, there is parallel shift in the curve.
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