In the Keynesian cross diagram,the 45° line represents the short-run equilibrium condition that ____________.

Question

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In the Keynesian cross diagram, the 45° line represents the short-run equilibrium condition where output (Y) equals planned aggregate expenditure (PAE), which is represented by the 45° line equation Y = PAE. This is because any point on the 45° line represents a situation where actual output equals planned expenditure, indicating that there is no unplanned inventory accumulation or depletion, which is the definition of short-run equilibrium. Choice A correctly identifies this relationship. Choices B, C, D, and E do not accurately represent the short-run equilibrium condition in the Keynesian cross diagram.

In the Keynesian Cross Diagram,the 45° Line Represents the Short-Run