find out conception and savings when autonomous consumption is Rs 100 MPS is 0.5 and income is 2000 is there greater increase in income as compared to consumption when income changes to rupees 2500
Dear Student ,
If MPS=0.5, then
MPC= 1-MPS= 1-0.5 = 0.5.
Consumption Function is C = 100+ 0.5 Y where Y in the income in the economy.
At level of income of 2000, consumption is
C=100 + 0.5 ( 2000)
= 100 + 1000
= Rs 1100
Consumption = Rs 1100
2)
Consumption + Savings = (Y) Income
Rs 1100 + Savings = Rs 2000
Savings = Rs2000 - Rs1100
Savings = Rs 900
3) MPS = ΔS / ΔY
0.5 = ΔS/ 500
ΔS = 500*0.5
ΔS = Rs 250
Therefore , When the income rises to Rs 2500 savings rise by Rs 250
If MPS=0.5, then
MPC= 1-MPS= 1-0.5 = 0.5.
Consumption Function is C = 100+ 0.5 Y where Y in the income in the economy.
At level of income of 2000, consumption is
C=100 + 0.5 ( 2000)
= 100 + 1000
= Rs 1100
Consumption = Rs 1100
2)
Consumption + Savings = (Y) Income
Rs 1100 + Savings = Rs 2000
Savings = Rs2000 - Rs1100
Savings = Rs 900
3) MPS = ΔS / ΔY
0.5 = ΔS/ 500
ΔS = 500*0.5
ΔS = Rs 250
Therefore , When the income rises to Rs 2500 savings rise by Rs 250