Question

In the Saving-Investment equality approach, the investment line is horizontal because ______.

Options

• Saving is always equal to income

• Investment increases with income

• Investment is autonomous and does not depend on income

• MPC is always equal to 1

Answer 1

In the Saving-Investment equality approach, the investment line is horizontal because investment is autonomous and does not depend on income.

Explanation:

In this approach, investment is treated as autonomous, it is determined independently of the level of national income (e.g., government welfare spending). Hence, the investment line is drawn as a horizontal straight line.