The vertical distance between the 45- degree line and the consumption line represents
A) saving or dissaving.
B) the difference between consumption expenditure and investment.
C) total consumption expenditure.
D) investment.

Question

Quizplus · Accepted Answer

The vertical distance between the 45-degree line (which represents the level of actual output) and the consumption line (which represents the level of consumption expenditure at any given level of output) represents the level of saving or dissaving. If the consumption line is above the 45-degree line, then saving is positive (people are spending less than their income) and if the consumption line is below the 45-degree line, then dissaving is negative (people are spending more than their income).

The Vertical Distance Between the 45- Degree Line and the Consumption