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Question : 4
Total: 7
Answer the following questions based on the figure given below :
(i) At which level of income Average Propensity to Save (APS) will be equal to zero and why ?
(ii) What does 'OA' signify with respect to consumption function.
(i) At which level of income Average Propensity to Save (APS) will be equal to zero and why ?
(ii) What does 'OA' signify with respect to consumption function.
Solution:
(i) At break even point Average Propensity to save (APS) will be equal to zero because when income is equal to consumption then saving is zero and also APS will be zero.
For example :: A P S =
=
= 0
Y = 200
C = 200
S = Y − C
= 200 − 200 = 0
(ii) In respect of saving functionO A signify dissaving on the other hand in respect of consumption function OA signify "Autonomous consumption" due to when Income is zero than consumption will be 40 so saving is negative.
At last we can say that consumption function and saving function are complementary.
Y = C + S
For example :
(ii) In respect of saving function
At last we can say that consumption function and saving function are complementary.
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