CA Foundation · Business Economics · Determination of National Income
In a two-sector Keynesian model, the saving function is S = -100 + 0.25Y (in ₹ crore). At what level of income is the average propensity to consume equal to 1?
The answer is ₹400 crore. APC equals one where consumption equals income, meaning saving is zero. Setting -100 + 0.25Y = 0 gives Y = 400. At this break-even income, the household sector neither saves nor dissaves.
- A₹300 crore
- B₹400 croreCorrect
- C₹500 crore
- D₹100 crore
Explanation
APC = 1 means consumption equals income, so saving is zero (break-even point). Set -100 + 0.25Y = 0, giving Y = 100/0.25 = ₹400 crore. Check: C = 100 + 0.75(400) = 400. ₹100 crore wrongly ignores dividing by MPS.
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