<p>For most people consumption does not equal income. Many consume less (they save) and others consume more (they take on debt) than they earn. In an economy with financial markets and heterogeneous consumers, discounted lifetime income should equal discounted lifetime consumption, but there is no reason why consumption should equal income at every point in time.</p>

CC BY-SA 3.0
2017-01-09T14:06:48.807Z
2017-01-09T18:13:57.567Z
2017-01-09T18:13:57.567Z
Tobias
<p>The question is as below</p>

<p><a href="https://i.sstatic.net/Iki8I.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/Iki8I.jpg" alt="enter image description here"></a></p>

<p>The answer is A. I understand why it is A, but do not understand why it isn't C. Doesn't the point where the consumption line and 45 degrees line intersect represents the equilibrium income level?</p>

CC BY-SA 3.0
2017-01-09T13:45:09.327Z
No it doesn't. Please consider rereading the model.
Giskard
<macroeconomics><gdp><keynesian-economics>
Why is the consumption line and 45degree line's intersection not the equilibrium income level?
tsp216
# Why is the consumption line and 45degree line's intersection not the equilibrium income level?

(Asked by: username_0 on 2017-01-09)

The question is as below

[![enter image description here](https://i.sstatic.net/Iki8I.jpg)](https://i.sstatic.net/Iki8I.jpg)

The answer is A. I understand why it is A, but do not understand why it isn't C. Doesn't the point where the consumption line and 45 degrees line intersect represents the equilibrium income level?

**Tags:** macroeconomics, gdp, keynesian-economics

> **Comments:**
> **username_1**: No it doesn't. Please consider rereading the model.  

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## 1 answers

### Answer by username_2 on 2017-01-09. Score: 2 | Accepted answer

For most people consumption does not equal income. Many consume less (they save) and others consume more (they take on debt) than they earn. In an economy with financial markets and heterogeneous consumers, discounted lifetime income should equal discounted lifetime consumption, but there is no reason why consumption should equal income at every point in time.


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