The break-even level of income for an economy is given to be ₹ 10,000 crores. If the economy saves 20 per cent of additional income, then calculate the value of autonomous consumption.

Explanation

Given: MPS = 0.2 `" "`(as 20% of additional income is saved)
MPC or b= 1-MPS= 1-0.2=0.8
Consumption ( C) = Income (Y) at Break-even level of income
So, Consumption ( C) = 10,000
Consumption Function is expressed as: C = `barc` +b(Y)
Putting the values of C, b and Y, we get: 10,000 = `barc` +0.8 (10,000)
Autonomous Consumption (`barc`) = ₹ 2,000 crores