Using the disposable income level at which the consumption function intersects the 45-degree line,we can identify
A)Full employment at the intersection point.
B)An inflationary gap to the right of the intersection point.
C)Dissaving to the left of the intersection point.
D)Dissaving to the right of the intersection point.

Question

Quizplus · Accepted Answer

The intersection of the consumption function and the 45-degree line represents the point where consumption equals disposable income. If the consumption function intersects the 45-degree line to the left of the origin, it implies that at lower levels of disposable income, households are spending more than their disposable income (i.e., dissaving). This is because they are borrowing to finance their consumption. Therefore, the correct choice is C (dissaving to the left of the intersection point). Choices A and B are incorrect as they do not relate to the disposable income level at which the consumption function intersects the 45-degree line. Choice D is incorrect as dissaving does not occur to the right of the intersection point.

Using the Disposable Income Level at Which the Consumption Function