Answer to Question #94276 in Macroeconomics for Nomthandazo

Question

the 45-degree line in the simple Keynesian model
(1) indicates that along the line aggregate demand is greater than aggregate supply
(2) is the line of disequilibrium
(3) show all the possible equilibrium points
(4) shows excess supply and excess demand

Answer 1

the 45-degree line in the simple Keynesian model  (3) show all the possible equilibrium points 

The 45-degree line of economics is so named because it forms a 45-degree angle with both the x and y axes when charted. In Keynesian economics, this line illustrates all of the points at which aggregate expenditures, measured on the y, or vertical axis, are equal to aggregate production, which are measured on the x, or horizontal axis. The equation typically used for this line under this economic theory is y=ae. According to Keynesian economics, the aggregate expenditures line illustrates the equilibrium level of aggregate production.

The 45-degree line is also used in non-Keynesian economics to showcase the relationship between consumption and income. Graphically representing this helps to illustrate cost savings, the vertical difference between the consumption line and the 45-degree line.

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