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The consumption function for an economy is : C = 20 + 0.8Y (assuming amount in ₹ crores). Determine the level of income when average propensity to consume will be one. |
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Answer» Average propensity to consume (APC) is 1 at break-even point, i.e. when consumption ( C) = Income (Y) Putting C = Y in the consumption function, we get : Y = 20+ 0.8Y Y= 100 It means, APC will be 1 when the level of income is ₹ 100 crores. Note: Proof: Consumption at income of ₹ 100 crores will be: C = 20+0.8`xx`100=100. APC = `("Consumption(C)")/("Income(Y)")=(100)/(100)` = 1 |
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