Question

8. Complete the accompanying table. Level of output and income (GDP = DI) Consumption Saving APC APS MPC MPS $100 $ -$5 125 (a) What is the break-even level of income? How is it possible for households to dissave at very low income levels?

Answer 1

Answer:

MPS 5 125 GDPEDI| Consumption Saving APC 100 105 1.05 125 1.00 150 145 5 0.97 175 165 10 0.94 2001 185 1 5 0.93 2251 205 200.91 250 225 25 0.90 275 245 30 0.89 300 265 35 0.88 APS | MPC -0.05 0.00 0.8 0.03 0.8 0.06 0.8 0.08 0.8 0.09 0.8 0.10 0.8 0.11 0.8 0.12 0.8 0.2 Break-even 0.2 0.2 0.2 0.2 0.2 0.2 0.2

(a) The break-even level of income is 125 because at this level of income Saving=0 and Income=Consumption.

At very low income levels, it is possible that the households to dissave because all the households have their own minimum level of consumption to survive regardless of their income level which is known as autonomous consumption. Thus if a household has low income than their consumption (i.e. autonomous consumption) then the household dissaves.