In the graph for the consumption function, the 45-degree line
A) contains only a consumption component.
B) represents both planned consumption and planned investment.
C) shows various combinations where planned consumption equals real disposable income.
D) reflects a decreasing APC as real disposable income rises.

Question

Quizplus · Accepted Answer

The 45-degree line represents points where consumption equals real disposable income. This means that any point on the line is a combination of planned consumption and actual income. Therefore, it represents both consumption and income, making options A and B incorrect. The APC (average propensity to consume) is not reflected in the 45-degree line, so option D is also incorrect.

In the Graph for the Consumption Function, the 45-Degree Line