Homework Answers
MPC = 0.6.
AUTONOMOUS consumption= 1000
The break even level of disposable income is at the point where all income is spent and saving equals 0.
Therefore, Yd = 1000+0.6Yd
or, Yd = 2500.
At disposable income 1000, consumption = 1000+0.6(1000) =1600 savings =-600.
At disposable income 2000, consumption = 1000+0.6(2000) = 2200
Savings = 2000-2200 =-200.
At disposable income 3000, consumption =1000+0.6(3000) = 2800
Savings = 3000-2800 =200.
Hence break even point is between 2000 and 3000.
From equation we get it is 2500.
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