Where the consumption function crosses the 45° line
A) saving is positive.
B) saving is negative.
C) consumption expenditure equals disposable income.
D) consumption expenditure equals saving.

Question

Quizplus · Accepted Answer

The 45° line represents the point at which output equals income, which means consumption expenditure equals disposable income. Therefore, the consumption function crosses the 45° line at the point where consumption expenditure equals disposable income, which is the equilibrium point. At this point, saving is neither positive nor negative, but zero.

Where the Consumption Function Crosses the 45° Line