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CA Foundation · Business Economics · Determination of National Income

In an economy, the saving function is S = -100 + 0.25Y (₹ crore). At what level of income is consumption exactly equal to income (the break-even point)?

The break-even income is ₹400 crore. Saving is zero when consumption equals income, so setting -100 + 0.25Y = 0 gives Y = 100 divided by 0.25, which is 400. At this income consumption is also ₹400 crore.

  1. A₹400 croreCorrect
  2. B₹300 crore
  3. C₹100 crore
  4. D₹500 crore

Explanation

At break-even, S = 0, so -100 + 0.25Y = 0, giving Y = 100/0.25 = ₹400 crore. Check: C = 0.75Y + 100 = 300 + 100 = 400 = Y. ₹100 crore wrongly equates Y with the autonomous term, ignoring MPS.

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