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Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040

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BuyFindarrow_forward

Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter 18, Problem 17SQ
Textbook Problem
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As shown in Exhibit 8, the 45° line represents

  1. a. autonomous consumption.
  2. b. real consumption spending.
  3. c. real disposable income.
  4. d. all points where real consumption equals real disposable income.

To determine

The 45-degree line in the exhibit.

Explanation of Solution

The consumption expenditure is the expenditure made by the consumers in the economy. The consumption expenditure has two parts: the autonomous consumption and the induced consumption. The autonomous consumption is the consumption that is not associated with the level of disposable income. The induced consumption is associated with the disposable income. The consumption expenditure of the economy is illustrated as follows:

Option (d):

The consumption function in the consumption disposable income diagram indicates the relation between the two. The consumption function has both the autonomous part as well as the induced part. The 45-degree line on the other hand illustrates all the points where the real consumption spending equals the real disposable income. Thus, option 'd' is the correct answer.

Option (a):

The autonomous consumption is the level of consumption that is not related to the level of disposable income in the economy...

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