Scribd Logo
Upload

Welcome to Scribd!

  • 7 views

    Solution 1464924

    Uploaded by

    Manish Ratnani

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Solution 1464924

    Uploaded by

    Manish Ratnani
    7 views2 pages

    Original Title

    solution-1464924

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    7 views2 pages

    Solution 1464924

    Uploaded by

    Manish Ratnani

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 2

    Solution

    CH- 7 AGGREGATE DEMAND AND AGGREGATE SUPPLY

    Class 12 - Economics

    Income (Y) Δ Y Savings (S) C (Y - S) Δ C MPC ( ΔC


    ) APC ( ) C

    1. ΔY Y

    0 - -20 20 - - -

    50 50 -10 60 40 0.8 1.2

    100 50 0 100 40 0.8 1

    150 50 30 120 20 0.4 0.8

    E
    200 50 60 140 20 0.4 0.7
    MPC+MPS=1

    EM RC
    APC+APS=1
    2. Given: Autonomous Consumption (C) = ₹ 60 crores; MPC or b = 0.6. To make the diagram, let us first calculate consumption
    expenditure corresponding to different income levels.

    E
    AD M
    Y
    AC OM
    EC
    ID

    Consumption (C)
    Income (Y)
    (₹ Crores)
    (₹ Crores)
    C = c + b(Y)
    PR

    0 60 (= 60 + 0.6 × 0)

    100 120 (= 60 + 0.6 × 100)

    200 180 (= 60 + 0.6 × 200)

    300 240 (= 60 + 0.6 × 300)

    400 300 (= 60 + 0.6 × 400)


    3. In the given diagram, SS' is the saving curve which shows negative savings equal to OS at zero level of income and zero saving at
    OA level of income.

    1/2
    At zero level of income, consumption expenditure is equal to OC which is equal to negative saving of OS at that level of

    E
    income. So, C is the starting point of consumption curve.
    Savings are zero at OA level of income as the whole of income is spent. So, at OA level of income, consumption

    EM RC
    expenditure must be equal to OD = OA. This gives a point Bon the consumption curve.
    By joining C and B and extending it further, we get consumption curve.
    At point B on the consumption curve, total consumption expenditure (C) is equal to total income (V). So, C

    Y
    = 1. Hence, at point
    B, on consumption curve, APC = 1.

    E
    4. i. We know, Income (Y) = Consumption + Saving (S)
    Or, S = Y - C
    AD M
    ∴ S = Y - (120 + 0.40Y) = -120 + (1 - 0.40)Y

    Y
    ∴ S = - 120 + 0.60 (Y)
    AC OM
    Alternate Way: Consumption function is expressed as: C = c̄ + b(Y)
    It means:120 is the autonomous consumption (c ) and 0.40 indicates MPC or b
    ¯
    ¯¯

    Saving Function is given as:S = - c + (1 - b)Y


    ¯
    ¯¯

    MPS or (1 - b) = 1 - MPC = 1 - 0040 = 0.60


    Putting the values of (1 - b) or MPS and -c̄ , we get: S = - 120 +0.60 (Y)
    EC

    ii. For saving at income (Y) of ₹ 500 crores, putting the values of (1 - b), C and Y in the saving function, we get: S = - 120 + 0.60
    × 500 = ₹ 180 crores

    iii. Saving will become zero at break-even point, i.e, when Y = C.


    Replacing C with Y in the consumption function to determine the break-even point.
    Y = 120 + 0.40Y
    ID

    0.6 Y = 120
    Y = 200
    Saving will become zero at income level of ₹ 200 crores
    PR

    2/2

    You might also like