Question

Identify, which of the following is true at the Break Even level of Income.

Options

• Slope of Consumption Curve = Slope of Saving Curve

• Average Propensity to Consume (APC) = Average Propensity to Save (APS)

• Slope of Saving Curve = Unity (1)

• Average Propensity to Consume (APC) = Unity (1)

Answer 1

Average Propensity to Consume (APC) = Unity (1)

Explanation:

• At the break-even level of income consumption equals income, so saving is zero; hence APC = `C/Y` = 1 and APS = `S/Y` = 0.
• The slope of the consumption curve is the marginal propensity to consume (MPC), and the slope of the saving curve is the marginal propensity to save (MPS); MPC + MPS = 1, so their slopes are not generally equal, nor is the slope of the saving curve equal to 1.