On the 45-degree line diagram, the 45-degree line shows points where
A)real income equals real GDP.
B)real aggregate expenditure equals C + I.
C)real aggregate expenditure equals real GDP.
D)real aggregate output equals the quantity produced.
E)real aggregate expenditure equals real aggregate consumption.

Question

Quizplus · Accepted Answer

The 45-degree line depicts the points where real aggregate expenditure (which is the sum of consumption, investment, government expenditures, and net exports) equals real GDP. This is because in a closed economy (where net exports are zero), GDP can be calculated by adding up all the final goods and services produced in the economy or by adding up all the spending on those goods and services. Thus, the 45-degree line represents the equality of these two measurements of economic output.

On the 45-Degree Line Diagram, the 45-Degree Line Shows Points