In the Keynesian cross, the 45-degree line:
A)is always lower than the aggregate expenditure function.
B)has the same slope as the aggregate expenditure function.
C)is a plot of all equilibrium GDP levels.
D)is always higher than the aggregate expenditure function.

Question

Quizplus · Accepted Answer

The 45-degree line in the Keynesian cross represents all the points where output (GDP) is equal to aggregate expenditure. It is also known as the "line of equality" since all points on this line have the same value of GDP and aggregate expenditure. Therefore, it represents all the points where the economy is in equilibrium. The aggregate expenditure function, on the other hand, shows the relationship between total spending (consumption, investment, government spending, and net exports) and output (GDP) at different levels of spending. The 45-degree line is not always above or below the aggregate expenditure function, and its slope is not necessarily the same as the aggregate expenditure function.

In the Keynesian Cross, the 45-Degree Line