The saving curve of an economy makes a negative intercept of ₹ 20 crore and 10% of additional income is saved. Derive the saving and cunsumtions function.
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Given, Autonomous Consumption $(\bar{\text{C}})=₹\ 20$ crore (Negative intercept of saving curve indicates $(\bar{\text{C}}),$
MPS = 0.1(as 10% of additional income is saved)
Saving Function is given as;
S = -C + (1 - b)Y
Putting the values of (1 - b) or MPS and $-\bar{\text{C}},$ we get; S = -20 + 0.1(Y),
Consumption Function is given as; $\text{C}=\bar{\text{C}}+\text{b}(\text{Y}),$
b or MPC = 1 - MPS = 1 - 0.1 = 0.9 Putting the values of b and C in the consumption function, we get,
C = 20 + 0.9(Y).
MPS = 0.1(as 10% of additional income is saved)
Saving Function is given as;
S = -C + (1 - b)Y
Putting the values of (1 - b) or MPS and $-\bar{\text{C}},$ we get; S = -20 + 0.1(Y),
Consumption Function is given as; $\text{C}=\bar{\text{C}}+\text{b}(\text{Y}),$
b or MPC = 1 - MPS = 1 - 0.1 = 0.9 Putting the values of b and C in the consumption function, we get,
C = 20 + 0.9(Y).
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