At the break-even point level of incomes for the economy is 10,000 crores and if the people tends to save 20 per cent of their additional income, then calculate the value of autonomous consumption. An Economy is in equilibrium, calculate the Marginal Propensity to Save (MPS) from the following : (i) National Income (Y) = 4,400 (ii) Autonomous Consumption (C_bar) = 1,000 (iii) Investment Expenditure (I) = 100

Question

Accepted Answer

Given: Break-even income = ₹10,000 crores, MPS = 0.2

At break-even point: C = Y (consumption equals income, saving is zero)
Saving Function: S = -c̄ + (1-b)Y
At break-even: S = 0
0 = -c̄ + MPS × Y
0 = -c̄ + 0.2 × 10000
0 = -c̄ + 2000
c̄ = ₹2,000 crores

Autonomous Consumption = ₹2,000 crores.

Note: The break-even point is where the consumption function intersects the 45° line, meaning all income is consumed and saving is zero. The autonomous consumption represents the minimum consumption level at zero income.