On a graph of the consumption function, where the consumption function crosses the 45 degree line,
A) disposable income is zero.
B) the maximum level of disposable income is earned.
C) there is no saving and no dissaving.
D) there are no tax payments.
E) induced consumption equals zero.

Question

Quizplus · Accepted Answer

When the consumption function crosses the 45 degree line, it indicates that consumption equals disposable income. In other words, there is no saving or dissaving because all income is used for consumption. Therefore, choice C is the best answer. Choices A, B, and D are incorrect because they make assumptions about the level of disposable income and tax payments that are not necessarily true when the consumption function crosses the 45 degree line. Choice E is also incorrect because induced consumption is not necessarily zero just because the consumption function crosses the 45 degree line.

On a Graph of the Consumption Function, Where the Consumption