FIGURE 21-1
-Refer to Figure 21-1. Desired consumption expenditures will equal disposable income at an income level of
A) zero.
B) Y1.
C) Y2.
D) Y3.
E) more than Y3.

Question

FIGURE 21-1
-Refer to Figure 21-1. Desired consumption expenditures will equal disposable income at an income level of
A) zero. 
B) Y1. 
C) Y2. 
D) Y3. 
E) more than Y3.

Quizplus · Accepted Answer

In the Keynesian cross model, the point where the planned aggregate expenditure (which is equal to consumption expenditures in this case) intersects with the 45-degree line representing disposable income is the equilibrium level of output (or income). In this case, the intersection occurs at point Y2, where desired consumption expenditures are equal to disposable income. At any lower level of income, desired consumption expenditures will exceed disposable income, and at any higher level of income, disposable income will exceed desired consumption expenditures. Therefore, Y2 is the income level at which desired consumption expenditures equal disposable income.

FIGURE 21-1 -Refer to Figure 21-1. Desired Consumption Expenditures Will Equal Disposable