At the point at which planned real consumption spending is equal to real disposable income
A) the consumption function is above the 45-degree line.
B) the consumption function is below the 45-degree line.
C) the consumption function intersects the 45-degree line.
D) the consumption function intersects the savings function.

Question

Quizplus · Accepted Answer

The point of intersection between the consumption function and the 45-degree line indicates that planned real consumption spending is equal to real disposable income, which means that households are neither saving nor dissaving at this point. This is the point of equilibrium in the economy's consumption and income relationship, and it lies on the 45-degree line because real consumption spending equals real income in the economy.

At the Point at Which Planned Real Consumption Spending Is