Chapter 4 Part 1 - AD,AS and Related Concepts

Economics Class 12
Macroeconomics

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?

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.

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,

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.

Example 16

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

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.

## 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  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.

### NCERT Questions

No questions in this part

### Other Books

#### Question 1

What is Slope and Intercept of Savings Equation?

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