In: Economics
a)
savimg is part of incomewhich is not spent on current income.
We can say that ,
S = f (Y)
there are two features of saving are:
1) saving can be negative at zero or low level of income
2) As income increases, saving also increases but more than the increase in income.
we called saving as
S = Y - C
= Y - [ + bY] where [ = bY]
= Y - - bY
S = - + [ 1 - b ] Y
Where C is the autonomous consumption and -C represents dissaving. At zero level of income, amount of autonomous consumption = amount of dissaving . And b = MPS ( marginal propensity to consume) calculated as
(1 - b ) = mpc
the relation between income and saving is, when the income increases , saving is also increases but less than increase in income. it means as income increases, proportion of income saved increases.
At lower level of income, saving is negative. In the initial stage when there is very low level of income, consumption expenditure is more than income leading to negative saving.
b)
Y is identified as GDP in equation form that include consumption (C) , investment (i) , Government spending (G) and net export (X - M).
c)
consumption is being a part of income , C = f(y)
when income is increases , consumption also increses but by a lesser amount i.e, additional consumption is less than additional income . this may be represent by b ( marginal propensity to consume).
consumption function in a straight line represent by a equation.
C = C + bY ( 0 < b < 1 ) .