Page 95 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes This example shows that this society begins to make positive savings only when it reaches an
income of 250.
Table 5.1: Data of a Hypothetical Economy

Y (Income) C S (Savings) APC MPC APS MPS
(Consumption)
0 60 -60 - - - -
100 150 -50 1.5 0.90 -0.5 0.10
200 220 -20 1.1 0.70 -0.1 0.30
250 250 0 1 0.60 0 0.40
350 300 50 0.89 0.50 0.11 0.50
450 345 105 0.77 0.45 0.23 0.55

The above numerical example has been presented diagrammatically in Figure 5.1 where the
horizontal axis measures income and the vertical axis measures consumption expenditures. The
consumption function indicating the consumption expenditures at various income levels is
shown by the line cc. Draw a 45º line through the origin. Every point on this line is equidistant
from the two axes. The difference between the 45º line and consumption function measures
planned saving at each income level of 25º, consumption exceeds income resulting in negative
savings. Beyond that income there are positive savings. Figure 5.2 draws the saving-function as
corresponding to the consumption function cc in figure 5.3.
Figure 5.1

Figure 5.2: Consumption and Saving Functions

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