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Ex Ante Consumption

The consumpti...

Question

The consumption function of an economy is given as: C = 60 + 0.6Y. For the given consumption function, calculate the break-even level of income.

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Solution

Break even point refers to the point where the income=consumption or savings= 0. Therefore,
Y=C
=> Y= 60 + 0.6 Y
=> Y - 0.6Y = 60
=> 0.4 Y = 60
=> Y = 60 / 0.4 = 150
Hence, the break-even level of income is 150.

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