The saving curve of an economy makes a negative intercept of ₹ 50 crores and 20 % of additional income is saved. Derive the saving and consumption function.

Explanation

Given: Autonomous Consumption `(barc)` = ₹ 50 crores
`" "` {Negative intercept of saving curve indicates `barc`}
MPS = 0.2 `" "`(as 20% of additional income is saved)
Saving Function is giving as: S= -`barc` + (1-b)Y
Putting the values of (1-b) or MPS and - `barc`, we get: S= -50 + 0.2 (Y)
Consumption Function is given as: C= `barc` + b(Y)
b or MPC = 1 - MPS = 1-0.2= 0.8
Putting the values of b and (`barc`) in the consumption function, we get: C= 50 + 0.8 (Y)