Answer to Question #109391 in Macroeconomics for Cedrick

Question

Which of the following statements are correct about the 45-degree line?
1. A negative relationship exists between aggregate spending and aggregate income.
2. At any point above the 45-degree line, there is excess supply of goods and services.
3. When aggregate spending is greater than total production, firms experience an unplanned increase in their inventories and respond by lowering their production.
4. The 45-degree lime shows the equality between the variable measured on the vertical axis and the variable measured on the horizontal axis.

Answer 1

The 45-degree line shows the equality between the variable measured on the vertical axis and the variable measured on the horizontal axis.

So, the correct answer is 4.