The 45-degree line on a graph relating consumption and income shows:

Question

all points where the MPC is constant.

all the points at which consumption and income are equal.

all points at which saving and income are equal.

the amounts households will plan to save at each possible level of income

The introduction of government sector in the Keynesian model assumes that:

there is no relationship between government spending and total income

government spending is autonomous

it has no impact on the size of the multiplier

all the above statements are correct

Answer 1

Question 1: The 45-degree line on a graph relating consumption and income shows…

The correct answer is:

• all the points at which consumption and income are equal.

Explanation: The 45-degree line represents all points where income (Y) equals consumption (C). This means that at any point on this line, the amount of income received by households is exactly matched by the amount they consume. Points above the line indicate that consumption is less than income, while points below the line indicate that consumption is greater than income.

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Question 2: The introduction of government sector in the Keynesian model assumes that…

The correct answer is:

• government spending is autonomous.

Explanation: In the Keynesian framework, government spending is typically viewed as an independent factor (autonomous) that does not rely on the level of income in the economy. While government spending can indeed influence total income and affect the size of the multiplier, the assumption is that government spending is added to consumption and investment, thus impacting overall aggregate demand. The other options provided do not accurately reflect the Keynesian model's treatment of government spending.

Please note, the option "it has no impact on the size of the multiplier" is incorrect because government spending does indeed affect the size of the multiplier, and "there is no relationship between government spending and total income" is also misleading, as government spending can influence total income.