Question

In: Economics

Using the consumption function below, calculate consumption and savings at each level of income and find break-even income.

Using the consumption function below, calculate consumption and savings at each level of income and find break-even income. C = 140 + 0.6 Y Income(Y) Consumption(C) Savings(S) 140 ____________ ____________ 280 ____________ ____________ 420 ____________ ____________ 560 ____________ ____________ What is the break-even level of Income? ____________

Expert Solution

USING THE FORMULAE-

Y-INCOME C- CONSUMPTION S- SAVINGS

Y=C+S

C= 140+ 0.6Y

S=Y-C

INCOME	CONSUMPTION	SAVINGS
140	140+0.6140= 224*	140-224= -84
280	140+0.6280= 308*	280-308= -28
420	140+0.6420= 392*	420-390= 28

560

140+0.6*560=

476

560-476=

84

FOR BREAK EVEN POINT Y=C AND S=0

SO C=140+0.6*C

C-0.6C=140

C=140/0.4

C=Y= 350 BREAK EVEN LEVEL OF INCOME

Rahul Sunny answered 2 years ago

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