45-DEGREE LINE: A line that shows equality between the variable measured on the vertical axis of a diagram and the variable measured on the horizontal axis. A 45-degree line is used both as a guideline that provides insight into the measured variables and as a critical part of the analysis. This line is perhaps most important in Keynesian economics. It is used in a diagram measuring consumption and income as a means of deriving saving---the difference between income and consumption. It is also used in the Keynesian model (or Keynesian cross) diagram measuring aggregate expenditures and aggregate production as a means of identifying equilibrium--the equality between aggregate expenditures and aggregate production.
A typical 45-degree line is presented in the exhibit to the right. In this particular exhibit, expenditures (aggregate expenditures) are measured on the vertical axis and production (aggregate production) is measured on the horizontal axis. The 45-degree line then depicts each point in this diagram in which aggregate production (Y) is equal to aggregate expenditures (AE). For this reason, the 45-degree line is also labeled Y=AE. The two most common uses of the 45-degree line are the Keynesian model and the consumption line.
Check Out These Related Terms... | consumption line | aggregate expenditures line | Keynesian model | Keynesian cross | saving line | derivation, saving line | consumption function | Keynesian equilibrium | Keynesian disequilibrium | Or For A Little Background... | graphical analysis | consumption expenditures | aggregate expenditures | Keynesian economics | And For Further Study... | induced expenditures | autonomous expenditures | derivation, aggregate expenditures line | injections-leakages model | multiplier | two-sector Keynesian model | three-sector Keynesian model | four-sector Keynesian model | paradox of thrift | fiscal policy | ![]() Recommended Citation: 45-DEGREE LINE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: September 3, 2024]. |