If MPC is one-third of MPS and consumption at zero level of national income is ₹ 40 crores, derive the consumption and saving function.

Explanation

Given : MPC = `(1)/(3)` MPS `" "…(1)`
We know : MPC + MPS = 1 `" "…(2)`
Putting value of MPC from (1) in (2), we get:
`(1)/(3)` MPS + MPS = 1
MPS = `(3)/(4)` = 0.75
MPC = `(1)/(3)xx0.75`=0.25`" "`{Altemately : MPC = 1- MPS = 1-0.75=0.25}
Consumption Function is given as : C = `barc` + b(Y)
Autonomous Consumption (`barc`) = ₹ 40 crores and b or MPC = 0.25
Putting the values of b and `barc` in the consumption function, we get: C= 40+0.25 (Y)
Saving Function is given as: S = - `barc` + (1-b)Y
Putting the values of (1-b) or MPS and - `barc`, we get : S = -40+0.75(Y)