Question

The consumption function of an economy is given as: C = 60 + 0.6Y. Draw a diagram showing consumption expenditure corresponding to income levels of 0, 100. 200. 300 and 400. (Values of Income and autonomous consumption are in Rs. crores).

Answer 1

Given: Autonomous Consumption $\overline{c}$= Rs. 60 crores: MPC or b = 0.6.
To make the diagram, let us first calculate consumption expenditure corresponding to different income levels.

Income (Y) (Rs. Crores)	Consumption(C) (Rs. Crores) $C=\overline{c}+b\left(Y\right)$
0	$60=60+(0.6\times 0)$
100	$120=60+(0.6\times 100)$
200	$180=60+(0.6\times 200)$
300	$240=60+(0.6\times 300)$
400	$300=60+(0.6\times 400)$