If Lily's consumption function is of the form [C = 100 + 0.8Y], her saving equals zero at an income level of
A) 180.
B) 500.
C) 800.
D) cannot be determined from the given information

Question

Quizplus · Accepted Answer

To find the income level at which saving equals zero, we need to set C (consumption) equal to Y (income) and then solve for Y:

C = Y
100 + 0.8Y = Y
0.8Y = 100
Y = 125

So the income level at which Lily's saving equals zero is $125. However, this answer isn't among the answer choices.

To find the closest answer choice, we can plug in the given values of Y into Lily's consumption function and see which one gives us a result closest to 0 (representing zero savings):

For option A:
C = 100 + 0.8Y
C = 100 + 0.8(180)
C = 244
244 - 180 = 64 (positive savings)

For option B:
C = 100 + 0.8Y
C = 100 + 0.8(500)
C = 500
500 - 500 = 0 (zero savings)

For option C:
C = 100 + 0.8Y
C = 100 + 0.8(800)
C = 740
740 - 800 = -60 (negative savings)

So the answer is option B, as $500 is the income level at which Lily's saving equals zero.

If Lily's Consumption Function Is of the Form [C =