FIGURE 21-3 Refer to Figure 21-3.Consider the simplest macro model with no government and no foreign trade,and the aggregate expenditure function AE = C + I.If there was zero autonomous expenditure and the marginal propensity to consume was equal to one,then the AE function would be
A)steeper than the 45-degree line.
B)above the 45-degree line at all points.
C)below the 45-degree line at all points.
D)coincident with the 45-degree line.
E)flatter than the 45-degree line.

Question

FIGURE 21-3 Refer to Figure 21-3.Consider the simplest macro model with no government and no foreign trade,and the aggregate expenditure function AE = C + I.If there was zero autonomous expenditure and the marginal propensity to consume was equal to one,then the AE function would be
A)steeper than the 45-degree line. 
B)above the 45-degree line at all points. 
C)below the 45-degree line at all points. 
D)coincident with the 45-degree line. 
E)flatter than the 45-degree line.

Quizplus · Accepted Answer

If the autonomous expenditure is zero and the marginal propensity to consume is one, then the aggregate expenditure (AE) function would be coincident with the 45-degree line. This is because AE = C + I, and with a marginal propensity to consume of one, consumption (C) will equal disposable income (Yd). Therefore, AE = Yd + I = Y + I. As Y equals the value of output (or income) in the economy, this means that AE is equal to total output (or income), which is represented by the 45-degree line.