In a diagram with the consumption function, the 45- degree line
A) reflects a decreasing MPC as disposable income rises.
B) shows where consumption expenditure equals disposable income.
C) contains only a consumption component.
D) represents both consumption expenditure and investment.

Question

Quizplus · Accepted Answer

The 45-degree line represents the point where consumption expenditure is equal to disposable income, which is the point of equilibrium in the Keynesian model. It is not related to the MPC or investment.

In a Diagram with the Consumption Function, the 45- Degree