Question

given a consumption function c=100+0.6y . calculate a) saving at a income of 1000 crores b) average propensity to consume at 1000 crores c) break even level of income

Answer 1

Dear student,
C=100 + 0.6y
(a) y= 1000 cr
C= 100 + 0.6(1000)
C= 100 + 600= 700
Y= C + S
1000 = 700 + S
S= 300cr

(b) APC= C/Y
APC= 700/1000= 0.7

(c) Break-even level of income is where saving equals zero (consumption equals income).
If Break even level of income is 1000 Cr. which implies consumption is also 1000 Cr.
S = Y - C
Therefore at Break even level S = 0

Regards.