Question

The consumption function of an economy is : C = 40 + 0.8 Y (amount in ₹ crores). Determine that level of income where the average propensity to consume will be one.

Answer 1

Given:
C = 40 + 0.8 Y 
APC =1 
APC = `"Y"/"C" = 1`
⇒ Y = C

Putting the value of C in consumption function given above, we get
Y = 40 + 0. Y

Solving for Y we get,
Y = 200

So, the level of income is   ₹ 200 crores.