We know that

Savings = Income - Consumption

S = Y - C

But we know that C = Ĉ + b(Y)

Putting this value of C, we get

S = Y - C

S = Y - (Ĉ + b(Y))

S = Y - Ĉ - b(Y)

S = -Ĉ + Y - b(Y)

S = -Ĉ + (1-b)Y

 

Example 1

Income Consumption Expenditure Savings
0 4000 -4000
10000 12000 -2000
20000 20000 0
30000 28000 2000
40000 36000 4000
50000 44000 6000
60000 52000 8000

Calculating Savings at 50000 Income level

S = -Ĉ + (1-b)Y

= -4000 + (1 - 0.8)*50000

= -4000 + 0.2*50000

= -4000 + 10000

= 6000

 

Calculating Savings at 20000 Income level

S = -Ĉ + (1-b)Y

= -4000 + (1 - 0.8)*20000

= -4000 + 0.2*20000

= -4000 + 4000

= 0

 

Example 17

On the basis of consumption function: C = 120 + 0.40 Y; answer the following

questions:

(i) Derive the saving function.

(ii) Determine the saving at the income level of ₹ 500 crores.

(iii) At what level of income, saving becomes zero?

View Answer

Example 22 

If a consumption function of a hypothetical economy is given as:

C = 100 + 0.6 Y; then

(i) What will be the values of marginal propensity to consume and marginal propensity to save for the economy?

(ii) Write the corresponding saving function.

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Example 19

The consumption function for an economy is: C = 20 + 0.8Y (assuming amount in ₹ crores). Determine the level of income when average propensity to consume will be one,

View Answer

 

Example 21

Given below is the consumption function of an economy:

C=100+0.5Y.

With the help of a numerical example, show that in this economy, as income increases, APC will decrease.

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Example 16

With the help of saving function: S = - 20 + 0.3 (Y), calculate consumption expenditure at the income level of ₹ 1,000 crores.

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Example 18

If MPC is one-third of MPS and consumption at zero level of national income is ₹ 40 crores, derive the consumption and saving function.

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What is Slope and Intercept of Savings Equation?

We have studied in Math's that

Slope of line is

y=mx + c

where

m is slope of line

c is y intercept

 

Now, Savings Equation is

S=-Ĉ +(1-b)Y

S=(1-b)Y -Ĉ

 

Comparing [1] and ]2]

Slope of line is 1-b (1-mpc)

Intercept is -Ĉ (Autonomous Consumption)

 

Example 15

The saving curve of an economy makes a negative intercept of ₹ 50 crores and 20% of additional income is saved. Derive the saving and consumption function.

View Answer

NCERT Questions

No questions in this part

Other Books

Question 1

What is Slope and Intercept of Savings Equation?

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Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo