Question

What does the 45° line represent?

Options

• All points where saving equals income, \[S=Y\].

• All points where income equals consumption, \[C=Y\].

• All points where induced consumption is zero, \[cY=0\].

• All points where consumption is zero, \[C=0\].

Answer 1

The 45° line is the reference line where income equals consumption: \[C=Y\]. At every point on this line, saving is zero.