When graphing the consumption function, what purpose is served by the 45-degree line?
A) It identifies all the points at which saving and consumption spending are equal.
B) It identifies all the points at which real disposable income and planned real consumption spending are equal.
C) It identifies all the points at which real planned investment expenditure and real autonomous consumption spending are equal.
D) It identifies all the points where real dissaving and saving are equal.

Question

Quizplus · Accepted Answer

The 45-degree line shows all the points where real disposable income and planned real consumption spending are equal. This is because the line represents a situation where income equals spending, so any point on the line indicates that consumption spending is equal to income. This is a critical relationship for understanding the consumption function and determining the equilibrium level of income and spending in the economy.

When Graphing the Consumption Function, What Purpose Is Served by the 45-Degree