Chapter 4 Part 1 - AD,AS and Related Concepts

Economics Class 12
Macroeconomics

For Solving the Questions, we need to Remember following formulas

Income = Consumption + Savings

Y = C + S

MPC = Change in Consumption/ Change in Income

MPC = Delta C/Delta Y

MPS = Change in Savings/ Change in Income

MPS = Delta S/Delta Y

Example 4

Calculate MPC from the following schedule:

 Income (Y) 0 100 200 300 400 Consumption (C) 60 110 150 180 200

Example 5

The level of income, in an economy, increases from ₹ 20,000 crores to ₹ 70,000 crores, and as a result the level of consumption increases from ₹ 15,000 crores to ₹ 45,000 crores.

Calculate the MPC.

Income increases from 20,000 to 70,000

Level of consumption increases from 15,000 to 45,000

Calculate MPC.

Example 6

Calculate the value of MPS from the given table:

 Income 100 200 300 400 500 Savings 15 40 70 110 160

Calculate MPS

Example 3(v)

When income rises from ₹ 1,000 to ₹ 1,100, saving rise by ₹ 30. Find out MPS and MPC.

Income rises from Rs1000 to Rs1,100

Savings rise by Rs 30.

Calculate MPC and MPS

Example 7

Complete the following table:

 Level of Income (₹) 400 500 600 700 Consumption Expenditure (R) 240 320 395 465 MPC - - - - MPS - - - -

In this question, we are given Income (Y) as well as Consumption Expenditure (C )

We need to calculate MPC and MPS

For this we will do following steps

Step 1                   Calculate Savings (Income - Consumption Exp)

Step 2                   Calculate increase in Consumption, Increase in Savings and Income

Step 3                   Calculate MPC and MPS

Example 8

Complete the following table:

 Income Saving Marginal Propensity to Consume Average Propensity to Save 0 - 12 - - 20 - 6 - - 40 0 - - 60 6 - -

In this question, we are given Income (Y) as well as Savings (S )

We need to calculate MPC and APS

For this we will do following steps

Step 1           Calculate Consumption (Income - Savings = Consumption)

Step 2           Calculate increase in Consumption and Increase in Income (increase in Savings not required)

Step 3           Calculate MPC (Increase in Consumption/ Increase in Income)

Step 4           Calculate APS (Savings/ Income)

Example 9

Complete the following table:

 Income Consumption Marginal Propensity to Save Average Propensity to Save 0 40 - - 50 70 - - 100 100 - - 150 120 - -

Example 11

From the following schedule, compute APC, APS, MPC and MPS:

 Income (₹) 50 100 150 200 Saving (₹) 10 40 75 120

Example 12 Part 1

In this question, We are given 2 sets of Income (Y) and Consumption Expenditure (C )

We need to do following Steps

Step 1 Calculate Savings (Savings = Income - Consumption Exp (S = Y - C)

Step 2 Calculate Change in Income, Savings and Consumption Exp

Step 3 Calculate APS

 Income (Y) Consumption Exp (C ) Savings (S) APS (S/Y) 80 64 16 0.2 100 78 22

Example 12 Part 1

In this question, We are given Income (Y) and Consumption Expenditure (C )

We need to calculate APS

Step 1 Calculate Savings (Savings = Income - Consumption Exp (S=Y-C)

Savings + Consumption = Income

1. Savings + 64 = 80

Savings = 16

Step 2 Calculate APS = Savings/ Income = S/I

APS = Savings/ Income

APS = 16/80

APS = 0.2

Example 12 Part 2

In this question, We are given Income (Y) and Consumption Expenditure (C )

We need to calculate APC and MPC

For this, we need to calculate Increase in Consumption and Increase in Income

 Income (Y) Consumption Exp (C ) Savings (S) APS (S/Y) APC (C/Y) Increase in Income (Delta Y) Increase in Consumption Exp (Delta C) MPC (Delta C/Delta Y) 80 64 16 0.2 - - - 100 78 22 0.78 20 14 0.7

Example 10

Complete the following table:

 Income MPC Savings APS 0 - -90 - 100 0.6 ? ? 200 0.6 ? ? 300 0.6 ? ?

### NCERT Questions

No questions in this part

### Other Books

#### Question 1

If MPS is 0.3 and the income increases from Rs 6,000 crores to 9,000 crores, what will be the additional consumption in the economy?

#### Question 2

If national income is Rs 90 crore, Consumption Expenditure is Rs 81 crore,

find out average propensity to save. When income rises to Rs 100 crore

and consumption expenditure to Rs 88 crore. What will be the marginal

propensity to consume and marginal propensity to save.