7.20 Introductory Macroge, Ne 7. Mpg = 4S. _ ‘ay = 1~MPC 8 C= +BY) 9S = -8+(1-b)Y i le: Example 1, Calculate APC and APS from the following schedul ye a” ‘Consumption (C) 60 1 Solution: Income (Y) | Consumption(C) | Saving (S) & @ s=¥-C@) 100 80 20 200 720 0 720 + 200 = 0.60 300 180 720 7e0+300=0.60 | 120=300=0.49 Example 2. If APC of an economy is 0.8, what should be saving at an income level of €29y crores? Solution: We know, APC + APS = 1 Given: APC = 0.8; So, APS = 1-0.8=0.2 __Saving (Ss) _ Saving (Ss) Also, APS = come (Y) 7) 12.0.2 = 3,000 Saving = % 400 crores Example 3. (i) The disposable income (Y) is € 1200 crores and consumption expenditure (C) is @80 crores. Calculate the APC. (ii) If saving is € 500, out of an income of & 5,000, how much is the APS? (iii) If disposable income is € 1,000 and consumption expenditure is % 750, find out average propensity t0 save. (CBSE, Delhi 20! (iv) If income is % 500 and saving are @ 100, calculate APC. (v) When income rises from % 1,000 to & 1,100, saving rise by € 30. Find out MPS and MPC Solution: z _ Consumption (Cc) __800__ () APC =—~“Tncome (¥) 1,200 ~ 087 Saving (S)__ 500 _ 449 (i) APS = “income (¥) 5,000 Scanned with CamScanneryr iu e wey 1a Demand and Related Concer fF _ Saving (S)__ 1.000-750 (APS = “acome (Y) * 1,009 = 925 724 Consumption (C - a apc = ) _ 500-100 Income (Y) 77 088 _Ghange in Saving (85) _ Dn. (MPS = “Change income (AY) 1,100- 1,000 — oe MPC = 1-MPS = 1-0.0=0.70 prample 4 Calculate MPC from the followin, shed ample #- Calculate oc trom 1B income (Y) _ 0 100 oh aoe) ‘Consumption (C) 0 410 t 150 120 mn solution: Income (Y) — Consumption (C) ‘Change in Change in MPC @ eR Consumption (30) | Income (AY) i] a MPC = 50+ AY o © _ — = 100 110 nD 100 200 | 10 4 [100 __ 0 | 180 | D. 100 [400 20 | 20 [100 0.20 (= Example 5. The level of income, in an economy, increases from @ 20,000 crores to & 70,000 crores, and asa result the level of consumption increases from % 15,000 crores to % 45,000 crores. Calculate the MPC. Solution: T income (¥) “Consumption (C) | Changein | Change in MPC @ i @ | Consumption (SC) | Income (AY) | MPC=aC+AY fl ® & | 20,000 15,000 = | _ [70,000 45,000 30,000 50,000 0.60 Example 6. Calculate the value of MPS from the given table: —— Tr 400 0.30 (= 30+ 100) | Scanned with CamScannerComplete the following table: ‘eh Y | Level of income @®) [400 | __ 500 on 700 C | Consumpa rye 395 qi mption 240 65 MPG | Expenditure (%) 7 en oF MPS = 2 2S oF Solutions Tee 4 lutions - 28, Level of ‘Consumption MPC Income.) | Expendiure(c) | MPO=0#A¥ ®) ® 400 240 = 500 320 10.80 (= 80 + 100) 600 ry 0.75 (= 75+ 100) { 700 465 0.70 (= 70 100) Example 8. Complete the following table: ICBSE, Dely 2 Income ‘Saving ‘Marginal Propensity | Average Pr to Consume to Save 0 =12 = = 20 -6 - a 40 0 = = 60 6 = = Solution: Income (Y) | Saving (S) | Consumption | Marginal Propensity | Average ®@ ®) OR) to Consume (MPC) to Save (APS) MPC = AC = AY APS=S+Y 0 =12 2 = = 20 -6 26 0.70 0.30 40 0 40 0.70 0.00 60 6 54 0.70 0.10 Example 9. Complete the following table: ICBSE, Delhi 20091 P 'pI Income Consumption | Marginal Propensity | Average Propensity to Save toSave 0 40 = = 50 70 a = 100 100 = = 150 120 a - J Scanned with CamScannerand and Related Concepts Saving Margi 8 eae ‘sty | Average Propensity MPS = AS 4 toSa 40 4S + ay AP8=5+Y 20 = - 0 O40 = 0.40 30 se 0 .60 je10. complete the following table: 020 i : ; f Income Marginal Propensity ICBSE, All India 2009 (1)] to Consume Saving ‘Average Propensity 0 = to Save 100 06 ~90 — 200 06 = = 300 06 = = lI = _ io income | MPC MPS 4s Saving (S) ‘APS. iw MPS = 1~MPC | 4S= MPS x Ay 0 = = = = APS=S+¥ 100 0.6 04 40 = on 200 06 4 “40 = a 300 06 04 0 7 a anple 11. From the following schedule, compute APC, APS, MPC and MPS: income (2) 50 100 150 | 200 saving (2) 10 40 75 120 Solution: Income | Saving | Consumption | APC APS MPC MPS me | (SR) (CR) 50 10 40 0.80 0.20 = = 100 40 60 0.60 0.40 0.40 0.60 150 75 75 0.50 0.50 0.30 0.70 200 120 80 0.40 0.60 0.10 0.90 Formulae used: C = - 8; APC = C +; APS=S +Y;MPC-AC + AY; MPS AS + AY Eumple 12, Given that national income is € 80 crore and consumption expenditure € 64 me rises to € 100 crore and consumption perisity to consume and the marginal {CBSE, Delhi 2011 (D} ae find out average propensity to save. When inco &penditure to % 78 crore, what will be the average Pro Popensity to consume? Scanned with CamScannerwnuone nahontt Average P; _ Saving (S) = 20 9 Propensity to Save = income (V)_ pion expenditure to 878 crore ‘When income rises to & 100 erre and cons a Consumption (C) =a O78 Average Propensity to Consume =—ncome (¥) 5 tion (AC) __78-64 Change in Consump! = Marginal Propensity to Consume = "zpange inincome (AY) 100=ap =>. Example 13, The consumption expenditure and investment demand are el Core an Fores respectively, when income is € 1,000 crores. Calculate () AD, (i) AS Gi) Saying Solution: 7 (i) AD =Consumption expenditure (C) + Investment dé AD = 600 + 300 = % 900 crores. (ii) We know, aggregate supply (AS) and national income (¥) mean 1,000 crores. 1,000 and ¢ = 600 Itmeans, Saving (S) = - C = % 400 Crores (Yee, Ans. (i) AD = & 900 crores; (i) AS = & 1,000 crores; (ii) Saving = € 400 crores. jemand (I) One andthe same hin 4 (i) _ Example 14, Using the equation of consumption function: C +B(Y), calculate consump, " expenditure at the income level of € 500 crores, if autonomous consumption is @ 49 ors 40% of additional income is saved. Solution: meet Given: MPS = 0.4 MPC or b= 1-MPS =1-0.4=06 Given: Autonomous Consumption (@) = & 40 crores; Income (Y) = 500 crores Putting the values of b, @ and in the consumption function, we get: C= 40+0.6 x 500=% 340 crores a (as 40% of additional income is Sieg ‘Ans, Consumption Expenditure (C) = & 340 crores a Example 15, The saving curve of an economy makes a negative intercept of & 50 crores and 20% of aio income is saved. Derive the saving and-consumption function. Solution: Given: Autonomous Consumption (6) = € 50 crores {Negative intercept of saving curve indicates) MPS =0.2 (as 20% of additional income is sav) Saving Function is given as: S =~ + (1-b)Y Putting the values of (1 ~b) or MPS and -<, we get: $ = - 50 + 0.2 (Y) Consumption Function is given as: C = + b(Y) borMPC=1-MPS=1-0.2=08 Putting the values of b and (¢) in the consumption function, we get: C = 50 + 0.8 (Y) Scanned with CamScannerogee paample 3 ae xpenditure at the income level of & 1,099 roe ° 2 solution: cov a We know, Saving function is expressed as: =-2+(1 -b)Y ttmeans:~ 20 indicates that autonomous consumption (@) = & 20 crores (Assuming value of C) in & crores) te Demand and Related Concepts 20 + 03 (¥), calculate consumption aa 0.3 indicates (1~b), i.e. MPS = 3 We know, Consumption Functions given as:C = + b(Y) . MPC orb =1-MPS = 1-039 -0,79 _- Income orY = 1,000 crores Putting the values of b, (©) and in the consumption function, we get: C=20+0.7 x 1,000=%720 crores ns. Consumption Expenditure (C) = €720 crores gxample 17. On the basis of consumption function: C = 120 + 0.40 Y; answer the following stions: (i) Derive the saving function. (ii) Determine the saving at the income level of & 500 crores. (ji) At what level of income, saving becomes zero? Solution: (i) We know, Consumption function is expressed as: C =¢ + b(Y) Itmeans: 120 is the autonomous consumption (@) and 0.40 indicates MPC or b Saving Function is given as:S =< + (1 -b)Y MPS or (1-b) = 1-MPC=1=0.40=0.60 Putting the values of (1 -b) or MPS and -6, we get: S = - 120 + 0.60 (Y) (ii) For saving at income (¥) of % 500 crores, putting the values of (1 - b), ¢ and Y in the saving function, we get: S = - 120 + 0.60 x 500 = 180 crores (ii) Saving will become zero at break-even point, ie. when =C. Replacing C with Y in the consumption function to determine the break-even point. Y =120+0.40Y o.sy = 120 Y =200 Saving will become zero at income level of & 200 crores Example 18. If MPC is one-third of MPS and consumption at zero level of national income is 740 crores, derive the consumption and saving function. Solution: Given: MPC = 4. MPS w(t) We know: MPC + MPS = 1 2) Putting value of MPC from (1) in (2), we get: Scanned with CamScanner1 BMPS +MpS a1 upg = 3. 4 = 075 po=1-MPS=1-0.75~ MPC =ty 075 = 025 gatemately MI Consumption Function is given as: =6+ (1) 3 Autonomous Consumption (6) = an crores and bor MPC = “ce Pouting the values of andein te consumenenesncsen We geEC = 40% 0.25 (y Saving Function is given as:$=-6+ (1-0) Putting the values of (1 ~b) or MPS and-€, we get:S Example 19, The consumption function for an economy isC= na OY (assuming in ® crores). Determine the level of income when average propensity t0 consume Solution: - 4040.75 (Y) Te ‘Average propensity to consume (APC) is 1 at breakeven point. Le.whien Consumes. Income (¥) Putting C =Y in the consumption function, we get: Y=20+08Y Ne eae ¥= 100. i it means, APC willbe 1 when the level of income is @ 100 crores. Note: Proof: Consumption at income of? 100 crores willbe: C= 20 + 0.8% 100 = 100, Consumption (C) _ 100 _ Income (Y) 100 Example 20, The break-even level of income for an economy is given to be © 10,000 cx the economy saves 20 per cent of additional income, then calculate the value of au APC = consumption. Solution: Given: MPS =0.2 (as 20% of additional income is sr MPC orb = 1-MPS=1-0.2=08 Consumption (C) = Income (Y) at Break-even level of income So, Consumption (C) = 10,000 * Consumption Function is expressed as: C =¢+ 0(¥) Putting the values of C, b and Y, we get: |0,000 = ¢ + 0.8 (10,000) Autonomous Consumption (¢) = % 2,000 crores 1, Given below is the consumption function of an economy: C=100+05Y. With the help of a numerical example, show that in this economy, as income increases, 4% will decrease. (CBSE, Sample Paper? Solution: Example 2 Given consumption function: C = 100 + 0.5Y. Scanned with CamScannergchedule: th increase j income (¥) Income, consider the following hypothetical ®) ae —— 100 APC=C+¥ 200 oet | aoa 1.50 (= 150 + 100) | = 200 = 400 200 + 200) _| 500 0.83 (= 250 + 300) As seen in the given Schedule, 0.70 (= 350 +500) and then to 300 crores and pal) the incom, on decreasing with increase in ines APC decrez come. The 'e increases from & 100 crores to € 200 crores Ses from 1.5 to 1 and then to 0.83 and keeps "efore, with an increase in income, APC decreases. ‘al economy is given as: i) What will be the values of magn ” *O6%t a cave for the economy? Binal propensity to consume and marginal propensity to i) Write the corresponding Saving function. ICBSE, All India 2018} sution®: . () C= 100 + 0.6Y (given) So, MPC = 0.6 MPS =1-MPC=1-06=0.4 (i) S=C+(1-byy pample 25. Estimate the value of Aggregate Demand in an economy ift (CBSE, Sample Paper 2019) (a) Autonomous Investment (1) (b) Marginal Propensity to Save 12 (©) Level of Income (Y) ,000 crores (d) Autonomous Consumption Expenditure (¢) = 50 crores... 100 crores Solution: ‘Aggregate Demand (AD) function is given as: AD = or, AD = {6 + b(Y)} +1 ~~ (asC=¢+0(Y) = 50 (Given) borMPC =1-MPS=1-02=08 Substituting the values of ¢ and b in AD function, we get: AD = {50+ 0.8 (4,000)} + 100 = % 3,350 crores Aggregate Demand = 3,350 crores Scanned with CamScanner: ET eetenwina ‘Aggregate Demand (aD testo ot vat jung @ period of One coq Seco epee rappel me STON eg Ay * Components of Aggregate Demand: (Pt cnet oc Se, AD ist rn (8 overmetepentre() Net ers ne ma Pani espe eran an ment era MOE, tora * Consumption Function (Propensity to Conse) "> mm onan anne rene + Whos o Propensies o Consume: (@) Average Propet 9 Comune (ARR comepenatene ane. APC (0) Margin Pepenstyi Canaan (UPC tertoeretoclchANE NCEA peng ‘eon inttinane rie we + ‘Saving Function retest the tunctonallaoneipbatwsen s2¥9 and national income, * "Woes of Propentieso Soe: (3) Merge Pert oa AS trtnerotaiglSTB POMS (ie. as oS he to! eorsumen er Ee oe (0) Maal Popes oSam(MPs}atniobersoct egy M=e 35) OCT OS Ha (one urs = 8 + Investments tone agente ire on cre lew cai asc, + Wo Types of investment (0) tied ts roeyinesad ty he wamele MASE He Maa eng (e) Adonamoushresiment at fected canae lel ct dy ‘re potinate + ante Saving els othe amu whieh ane ino save a Sere! es fea aa, corey. + canto investments ote amour hich nets ances tre ele an economy + xepoet Saving tes othe ac sningnaneotey cel yea + Expos investment les te acl mveeertinaneenay ga year + FulEmploymentrcerstoashuson non at hoe peop wo wing nd abl twit ‘ising wage rata, gt wrk mat ay se oy, Involuntary Unemployment erst asiuton nich al hase peopl, wha ee wing ané abe workatne exci wegerae coro get wa mo e (0 Wats bea earns fe eativlotncowesaiagcaaey anormauirComaa gy i Shaesosaumernecrtare® FE tmegincin co Consumption cue miss oct ot* Sete cone ae ‘ommaing) st Ooo Socata © Sloesemrmmaee-tatees meses ves Se, (Ww) Consanton aon pena Ces ‘Asenomaus Consumer @)-8 over werMro-06 Patng beso! ard cman tin mp4 257 ‘Sung Frcs ghenae'Se-Be(t- 0 (f-bjortrs-Mrc= 1-08-04 ‘rae es 1-2) erUP an, mp4 044 (9 pote (0.2. 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Gia Aonomous Conon) =D owas NPC = A Temahethe dope ks lesa carer apershe corpus water nme Scanned with CamScannerwooo) Ta 01. oso alg}a|a| . = a recent Sa emanate Ane dee er etre 0-98" ete ETT Sanden neon ty ne EG en pane eg acon a AE OMe Me, hn tr ca are an no cae oa ‘Sate nowt cng cone or (2.6 Drow ons agar a stag ine sas ca ‘a coon Fo ee he crear Ca ‘cianeg be mete ern Show fOr ot Ieconmptin ca wich ce popes © comumeseaais RSE Dah 08) ‘20s tien aan 55 ean awe se a a ano Awe inf ecm comet pei 08, Dszuss tm inne tonne can dren fi Wino antigo ine econ epunr ae etmsicd te rence ge a me (00, Desist he SontesConanatin (9 Camuntons neem {a Merona spin att 8 (0) Pou epee (6 Sao sons ce 2 rcsamiperire¥e 5 hap Spy end "2 gga Dar (ovate {3 fear Pee Cay © Merah wene ees 4. commotntcaen leer Mr aia 2 commen agenesis Ph ny © een ear Ape S=PY Texter oo arcemsecatios © froceramrennamtore oe . reese ance aero ees ed © ws 2. Wich athe one ctnewaADinatoweerory? 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Gv mses, aah (sane omy sne( Hargralpoperat see (CBSE A Compt 258) Serta anqnowratenturemouseaeronisannerieraeie 122 Ditrgin mer marl open canned age ep s cnaeGns sean {ase oan Scena rn eae hese tt rer fn cans eaten? {CBSE OetsConpe ‘strane wb step rere ae Ewes crests abe ova Ere ee ams as ey montane est nanan ae wor Tye Questions Ag OD damage) Te TepsaMetOn Nese we pe ng, ‘Sane eh aoe BNC spe 1 0 part OY PEN conan Ste Maeere Fete nna ete wh peng Oe At Whi a Einaine process of demvaton. yp at Wi he Rn Pact ows Coime ea ane: (eet om ata eo unl Cu tom the Sing Cure. Une (C55 ait Congr 291 nse nen sirB 8 creer ce sa, yi esecheoe ea i te sent be enn agg cane tent ama cave Use on 7 oo co corsurotion cov. descent ssa pct anton oescoa ene nS tone sora tincineuty oa cmperinaer oat, Dev Pees 1 fercone resto beef ana t eon eecome ne mas Reon corer etn "Ge Soper veo Practica Me APC and APS tome eg ede eae ie a = Geren ® if = 2. Ainconaielof 5100 ces tenis eos te A 1. cael MPC UPS tome ng ne no ‘o | | =] |e sans | e6 —[ wa [es [so | oo pen emOR OORT |. hows sa € 550 ce alana SD a en casa MC -ite ttl ncome nist otene 6D cee antaning ness ton 1.80 trast 1500 cre ale PC a ‘.uPsiso3snneincnescreestenteCRSIE RON wate mass ‘ersumpton ihe ecto? Scanned with CamScanneryes WPS — amis LS arn pa SS NPC ae = eeacetaate oe __t TAG OO aed So ga a —— E = = =] = = = 200, o = =} 11. comginie toge BSE og Po tcane | Gmagn | amie Paeeiy | Anvape Peony] | “erpensare tose ‘Soe = 7a = a = =o on a ccnsneon triton an xy en a ( Aaramon Cre 1-219 enero tine Senerionatersna nae atone ge oaheee eens arent eieone, ne rine Sndcremptnidnamest osm cenebesrampe| ee am 1 ucomunpon cians aiarazepcomenta vans HMC MPS cate pe {i hen ev tag mags ks carne Seto mae Pen Inngoetomen 1 pesacomnpontrnemantenona sewers, Bestneschgmnontson erp saa ooo Scanned with CamScannerIntroductory Maco 42 7 Oh i “C= 0.7Y. Calculate the. Savin lg 21. The consumption function of an economy is given as:C = 40+ atthe level of € 2,200 crores (Saving = axis. If consume, Py ‘on the negative Y-axis. TS Spon) 7 i n intercept of € 40 crores on the n ion Function: gin SPS 7 Ht otto eerie determine: (i) Saving Function; (ii) Consumptior ‘on; (iii) Breay level of income. {() S=~40-+ 0.40¥. (i) C= 40 + 0.607. F109, Chore. 23. If national income is ¥90 crore and Consumption expenditure & 81 stro eB a to Save, When income rises to @ 100 crore and consumption —— (CBSE, Dain aavil be the marginal propensity to consume and marginal propensity to 7 roan! " 24. The saving function is given as: S =-120+ 08%. diagram showing saving corespongys 25. fee nay ie ae =30+0.4Y, then a ee at zero level ofj (ii) MPC; (iii) MPS; (iv) Break-even level of Income; (v) Sana oo (04: (9 96:0) 50.0.5 =-20. 99, INCOM, Scanned with CamScanner