Question

Under the Keynesian theory, ‘Reference Line’ is a straight line passing through the origin drawn at an angle of _______.
(Choose the correct option to fill in the blank)

• A. 25°
• B. 40°
• C. 45°
• D. 70°

Hint:

In Keynesian theory, the 45° line is crucial for showing equilibrium where income equals expenditure.

Answer 1

The Correct Option is C

In Keynesian economics, the 'Reference Line', also known as the 45-degree line, signifies the equilibrium where aggregate expenditure matches aggregate output or income. This line, plotted at a 45° angle from the origin on an income-expenditure diagram, identifies all points where planned spending equals actual output.