Final answer:
The assertion that the 45-degree line in the aggregate expenditures model is equivalent to the aggregate supply curve is false. The 45-degree line shows where aggregate expenditure equals national income and helps pinpoint the macroeconomic equilibrium. It is distinct from the aggregate supply curve, which relates to production levels at various price points.
Step-by-step explanation:
The statement that the equivalent of the aggregate supply curve in the aggregate expenditures model is the 45-degree line is false. In the Keynesian cross diagram or the aggregate expenditures model, the 45-degree line represents all the points where aggregate expenditure (AE) is equal to national income (Y). This line is critical for determining the point of equilibrium where the amount spent is in balance with the amount produced. Conversely, the aggregate supply curve in an aggregate supply and aggregate demand model reflects the total production that firms are willing to supply at different price levels, which is a distinct concept from the role of the 45-degree line in the aggregate expenditures model.
At the intersection of the aggregate expenditure function and the 45-degree line, the level of output is equivalent to the level of aggregate demand, indicating a macroeconomic equilibrium. When the level of output is below this intersection, aggregate demand is greater than output, suggesting inventory depletion and signaling to firms to increase production. Thus, this point of intersection is where the amount produced and the amount spent are in balance, and hence it is crucial for understanding macroeconomic equilibrium.