Question

Complete the following table. Construct/Express the Consumption function at \( Y < 200 \) crore level of income. \[ \begin{array}{|c|c|c|c|} \hline \textbf{Income (Y)} & \textbf{Savings (in Rs. crore)} & \textbf{APC} & \textbf{MPS} \\ \textbf{(in Rs. crore)} & & & \\ \hline 0 & -30 & - & - \\ 100 & \text{…….} & 1 & \text{…….} \\ 200 & \text{…….} & 0.85 & \text{…….} \\ 300 & \text{…….} & 0.8 & \text{…….} \\ \hline \end{array} \]

Hint:

Average Propensity to Consume (APC) shows how much of total income is spent on consumption, while Marginal Propensity to Save (MPS) indicates the proportion of additional income that is saved.

Answer 1

Step 1: Understanding the Consumption Function.

The consumption function is given by:

\[ APC = \frac{C}{Y} \] \[ S = Y - C \] \[ MPS = 1 - MPC \] Step 2: Filling in the missing values.
- For \( Y = 100 \), since \( APC = 1 \), we have \( C = 100 \) and \( S = 100 - 100 = 0 \).
- For \( Y = 200 \), since \( APC = 0.85 \), we have \( C = 0.85 \times 200 = 170 \), and \( S = 200 - 170 = 30 \).
- For \( Y = 300 \), since \( APC = 0.8 \), we have \( C = 0.8 \times 300 = 240 \), and \( S = 300 - 240 = 60 \).
- MPS is calculated using the formula: \[ MPS = \frac{\Delta S}{\Delta Y} \]
- Between \( Y = 100 \) and \( Y = 200 \), \[ MPS = \frac{30 - 0}{200 - 100} = 0.3. \] - Between \( Y = 200 \) and \( Y = 300 \), \[ MPS = \frac{60 - 30}{300 - 200} = 0.3. \] Step 3: Completed Table. \[ \begin{array}{|c|c|c|c|} \hline \textbf{Income (Y)} & \textbf{Savings (in Rs. Cr.)} & \textbf{APC} & \textbf{MPS} \\ \hline 0 & -30 & - & - \\ 100 & 0 & 1 & 0.3 \\ 200 & 30 & 0.85 & 0.3 \\ 300 & 60 & 0.8 & 0.3 \\ \hline \end{array} \] Step 4: Conclusion.

Thus, the completed table correctly expresses the consumption and saving function at income levels below Rs. 200 crore.