In a diagram with the consumption function, the ________ shows all points where disposable income equals consumption expenditures.

Question

Quizplus · Accepted Answer

The 45-degree line represents all points where disposable income equals consumption expenditures. It is drawn at a 45-degree angle because at each point on the line, C = Y (where C is consumption expenditures and Y is disposable income) so the line represents all points where consumption and disposable income are equal. The consumption function represents the relationship between consumption expenditures and disposable income, but it does not show the specific points where they are equal. The aggregate demand curve and saving function are not relevant to this concept.

In a Diagram with the Consumption Function, the ________ Shows