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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.
Solution
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.
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