The 45-degree line represents points of equality between
A) saving and investment.
B) intended spending and GDP.
C) consumption and saving.
D) unemployment and inflation.
E) price levels and intended spending.

Question

Quizplus · Accepted Answer

The 45-degree line represents points where intended spending (planned aggregate expenditure) is equal to actual GDP. Any point on or above the 45-degree line represents an excess in intended spending compared to actual expenditure, which can lead to inflationary pressures. Any point below the 45-degree line represents insufficient intended spending compared to actual expenditure, which can lead to deflationary pressures. Therefore, the 45-degree line is a very important tool for understanding macroeconomic equilibrium.

The 45-Degree Line Represents Points of Equality Between