Derive saving function from consumption function equation, $straight C space equals space straight C with bar on top space plus space bY.$

Solution

Saving function equation. As saving function is corollary of consumption function, we can derive the correspondine savine function from consumption function equation,

straight C space equals space straight C with bar on top space plus space bY

by substituting it in the equation S = Y – C as shown below.

straight S space equals space straight Y space minus space straight C space space space space equals space straight Y space minus space left parenthesis straight C with bar on top space plus space bY right parenthesis space space space space space space space space space space space space space space space space space space space space space space space space space space left parenthesis because space straight C space equals space straight C with bar on top space plus space bY right parenthesis space space space space space equals space straight Y space minus space space straight C with bar on top space minus space bY

box enclose straight S space equals space minus straight C with bar on top space plus left parenthesis 1 minus straight b right parenthesis straight Y end enclose

where

straight C with bar on top space equals space

Autonomous consumption

left parenthesis negative straight C with bar on top

represents dissaving which is needed to finance autonomous consumption when income is zero. Clearly at zero level of income, amount of Autonomous Consumption = Amount of dissaving. (This indicates withdrawl from past savings or borrowing) b = MPC (So that 1 – b represents MPS. Since b is less than 1, therefore, MPS 1 – b is positive.)
Y = Income.
For example, the saving equation S = – 30 + (1 – 0.75) means -30 is dissaving (or autonomous saving that needs to take place to finance autonomous consumption). As income increases, 0.25 (= 1 - 0.75) or 25% of additional income is saved.

Some More Questions From Determination of Income and Employment Chapter

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Determination Of Income And Employment

Derive saving function from consumption function equation, $straight C space equals space straight C with bar on top space plus space bY.$

Some More Questions From Determination of Income and Employment Chapter

State briefly the Classical Theory and the Keynesian Theory of Income and Employment.

What do you understand by aggregate demand (AD)?

Explain the meaning of aggregate supply (AS).

Calculate consumption level for Y = र 1000 crores if consumption function is C = 300 + 0.5Y.

State relationship between income and consumption.

What is Breakeven point?

What are the types of Propensity to consume?

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