Page 2 - lesson note -Aggregate Demand and Related Concepts42

1. Calculate APC, APS, MPC, and MPS from the following data.

National Income(Y) 100 400 1000

Consumption(C) 60 120 240

Answer: -

Y C = 1 − ∆ ∆ ∆ = 1 −
= =
∆
100 60 0.6 1 − 0.6 = 0.4 --- ---- ------ -------
400 120 0.3 1 − 0.3 = 0.7 60 300 0.2 1 − 0.2 = 0.8
1000 240 0.24 1 − 0.24 = 0.76 120 600 0.2 1 − 0.2 = 0.8

2. If disposable income is Rs.500 and savings is Rs.100, find APC.

Answer: - Y = Rs.500

S = Rs.100

100
APS = = = 0.2
500

= 1 − = 1 − 0.2 = 0.8

3. The savings function in an economy = −100 + 0.2 . find the
consumption function and break-even level of national income.

Answer: - Savings function, = −100 + 0.2
Consumption function, = 100 + (1 − 0.2)
= 100 + 0.8

At the break-even level of national income S=0

 −100 + 0.2 = 0
 0.2 = 100
100
 = = 500
0.2
OR

At the break-even level of national income C = Y

 100 + 0.8 =
 0.8 − = −100
−100
 −0.2 = = 500
−0.2