On the basis of consumption function: C = 120 + 0.40 Y, answer the following questions: (i) Derive the saving function. (ii) Determine the saving at the income level of ₹ 500 crores. (iii) At what level of income, saving becomes zero ?

On the basis of consumption function: C = 120 + 0.40 Y, answer the fol

1.	On the basis of consumption function: C = 120 + 0.40 Y, answer the following questions: (i) Derive the saving function. (ii) Determine the saving at the income level of ₹ 500 crores. (iii) At what level of income, saving becomes zero ?
Answer» (i) We know, Consumption function is expressed as: C= `barc` + b(Y) It means: 120 is the autonomous consumption (`barc`) and 0.40 indicates MPC or b Saving Function is given as: S = - `barc` + (1+b)Y MPS or (1-b) = 1 - MPC = 1 -0.40 = 0.60 Putting the values of (1-b) or MPS and - `barc`, we get : S = -120+0.60(Y) (ii) For saving at income (Y) of ₹ 500 crores, putting the values of (1-b), `barc` and Y in the saving function, we get : S= -120 + 0.60 `xx` 500 = ₹ 180 crores (iii) Saving will become zero at break- even poit, i.e. when Y=C. Replacing C with Y in the consumption function to determine the break-even point. Y = 120 + 0.40 Y 0.6 Y = 120 Y = 200 Saving will become zero at income level of ₹ 200 crores