If the consumption function is c- 50+08 y, find the level of income at which saving is zero.
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Answer: As given in the examination problem, Equilibrium Income (Y) = Rs 4000 crore Autonomous Investment + Autonomous Consumption  = Rs 50 crore MPS = 0.2
So, MPC(b) = 1 – 0.2 = 0.8
(MPC = 1 – MPS)
AD = C + I
AD =  + bY + I =  + bY
= 50 + 0.8Y 
As we know, the equilibrium level of national income in two-sector model is determined where,
AS = AD
Y = 50 + 0.8Y
4000 = 50 + 0.8(4000)
4000 = 50 + 3200
4000 =3250
Hence, the economy is not in equilibrium.
So, MPC(b) = 1 – 0.2 = 0.8
(MPC = 1 – MPS)
AD = C + I
AD =  + bY + I =  + bY
= 50 + 0.8Y 
As we know, the equilibrium level of national income in two-sector model is determined where,
AS = AD
Y = 50 + 0.8Y
4000 = 50 + 0.8(4000)
4000 = 50 + 3200
4000 =3250
Hence, the economy is not in equilibrium.
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