Which of the following statements about the 45 degree line is true?
A) The 45 degree line cuts the vertical axis at the level of autonomous expenditure in the economy.
B) The 45 degree line connects all points where interest rates and national income are equal.
C) The slope of the 45 degree line is determined by the marginal propensity to consume.
D) A steeper 45 degree line indicates an inflationary gap.
E) The 45 degree line connects all points where consumption spending would equal national income.

Question

Quizplus · Accepted Answer

The 45 degree line represents all the possible points where national income (measured on the horizontal axis) equals spending (measured on the vertical axis). At any point on the 45 degree line, total spending (C + I + G + NX) equals total income (Y). Therefore, the correct statement is E: The 45 degree line connects all points where consumption spending would equal national income.

Which of the Following Statements About the 45 Degree Line