<P> The Keynesian cross diagram demonstrates the relationship between aggregate demand (shown on the vertical axis) and real GDP (shown on the horizontal axis, measured by output). </P> <P> In the Keynesian cross diagram (or 45 - degree line diagram), a desired total spending (or aggregate expenditure, or "aggregate demand") curve (shown in blue) is drawn as a rising line since consumers will have a larger demand with a rise in disposable income, which increases with total national output . This increase is due to the positive relationship between consumption and consumers' disposable income in the consumption function . Aggregate demand may also rise due to increases in investment (due to the accelerator effect), while this rise is reduced if imports and tax revenues rise with income . Equilibrium in this diagram occurs where total demand, AD, equals the total amount of national output, Y, (which corresponds to total national income or production). Here, total demand equals total supply . </P> <P> In the diagram, the equilibrium level of output and demand is determined where this desired spending curve intersects a line that represents the equality of total income and output (AD = Y). The intersection gives the equilibrium output, Y' . </P>

In the simple keynesian cross model the equilibrium level of real disposable income is determined by