Consumption And Investment In Management
Illustration 125
Provided the information below, you are required to determine the average and marginal propensity to consume.
Earnings Y 
Consumption C 
1700 
1820 
1850 
1900 
2220 
1850 
2760 
2150 
2590 
2750 
2920 
2450 
3540 
2770 
Solution
Earnings Y 
Consumption C 
Average Propensity to Consume 
Marginal Propensity to Consume 
C / Y 
Δ C / Δ Y 

1700 
1820 
1820 / 1700 = 1.07 
 
1850 
1900 
1900 / 1850 = 1.03 
80 / 150 = 0.53 
2220 
1850 
1850 / 2220 = 0.83 
50 / 370 = 0.14 
2760 
2150 
2150 / 2760 = 0.78 
300 / 540 = 0.56 
2590 
2750 
2750 / 2590 = 1.06 
600 / 170 = 3.53 
2920 
2450 
2450 / 2920 = 0.84 
300 / 330 = 0.91 
3540 
2770 
2770 / 3540 = 0.78 
320 / 620 = 0.52 
Illustration 126
Provided the saving function S =  60 + 0.6Y and selfgoverned investment, I = $300 million. You are required to find out the following
 The Symmetry level of earnings
 The level of consumption
 If investment enhances permanently by $30 millions, what will be the new levels of earnings and consumption
Solution
As per saving investment approach, symmetry level of national earnings is found out by balancing saving and investment and hence
S = I
Hence,

60 + 0.6Y = 300
0.6Y = 240
Y = 240
/ 0.6
(i) Hence symmetry of Earnings (Y) = 400
As per consumption function, Consumption parities earnings over savings and hence
C = Y – S …..Equation
(2)
Hence,
S = 
60 + 0.6Y …..Equation
(1)
Substituting the value of Y in the Equation (1), we procure the following
S = 
60 + 0.6 (400)
= 
60 + 240
Hence Saving (S) = 180
Substituting the value of S and I in the Equation (2), we have the following
C = 400 – 180
(ii) Hence the level of consumption (C) = 220
With the increase in investment by $30 millions, the new investment parities to $330 millions
S = I
Hence,

60 + 0.6 Y = 330
0.6
Y = 330 + 60
Y = 390 / 0.6
(iii) Hence, the new level of earnings would be (Y) = $650 millions
Now, Saving =  60 + 0.6 Y
= 
60 + 0.6 (650)
= 
60 + 390
Hence Saving (S) = 330
Substituting the new values of S and Y, the new consumption (C) would be devised as below
C = Y  S
= 650 – 330
(iii) Hence, the new level of consumption would be (C) $320 millions.
Illustration 127
Provided the data below, Earnings and Consumption based on which you are necessary to ascertain the following
 Average Propensity to Consume
 Average Propensity to Save
 Marginal Propensity to Consume and
 Marginal Propensity to Save
Earnings Y 
Consumption C 
360 
360 
480 
460 
600 
560 
720 
660 
840 
760 
960 
860 
Solution
Earnings Y 
Consumption C 
Average Propensity to Consume 
Average Propensity to Save 
Marginal Propensity to Consume 
Marginal Propensity to Save 
APC = C / Y 
APS = S / Y 
MPC = Δ C / Δ Y 
MPS = Δ S / Δ Y (1  MPC) 

360 
360 
360 / 360 
0 
 
 
480 
460 
460 / 480 = 0.96 0r 96% 
0.04 
100 / 120 = 0.83 
0.17 
600 
560 
560 / 600 = 0.93 or 93% 
0.07 
100 / 120 = 0.83 
0.17 
720 
660 
660 / 720 = 0.92 or 92% 
0.08 
100 / 120 = 0.83 
0.17 
840 
760 
760 / 840 = 0.91 or 91% 
0.09 
100 / 120 = 0.83 
0.17 
960 
860 
860 / 960 = 0.89 or 89% 
0.11 
100 / 120 = 0.83 
0.17 
Illustration 128
In an economy, the basic equations are as follows:
The consumption function is C = 220
+ 0.5Y and
Investment function is Ī = 250
You are required to ascertain the following
 Symmetry level of earnings
 Symmetry level of consumption
 Symmetry level of saving
 Symmetry level, aggregate demand equals aggregate supply and saving leakages equals investment injections
Solution
The symmetry condition is given as Y = C + I
Thus,
Y = 220
+ 0.5Y + 250
Y – 0.5 Y = 470
Y (1 – 0.5) = 470
0.5Y = 470
Y = 470 / 0.5
(a) Hence, the symmetry level of earnings (Y) = 940
The consumption function is C = 220 + 0.5Y
When Y = 940,
C = 220
+ 0.5 (940)
C = 220
+ 470
(b) Hence, the symmetry level of consumption (C) = 690
The saving equation is S = Y – C
When Y = 940 and C = 690, we have
S = 940 – 690
(c) Hence, the symmetry level of saving (S) = 250
(d) Now the aggregate demand and aggregate supply has to be equal for symmetry level which parities saving leakages and investment injections.
Hence,
C
+ I = C + S
690
+ 250 = 690
+ 250
940 = 940
(Or) Saving equals investment S = I
250 = 250
Illustration 129
Let us assume the consumption function is C = Ca + b Y and investment is I = Ī, then
 Determine the equation for the symmetry level of productivity
 Determine the symmetry level of productivity when Ca = 250, b = 0.6 and Ī = 450
Solution
The symmetry condition is given as Y = C + I.
Y = Ca
+ b Y + Ī
Y – b Y = Ca
+ Ī
Y (1 – b) = Ca
+ I
(a) Y = Ca
+ Ī ……..Derivative
(1)
(1 – b)
Substituting the values in the Derivative (1), we obtain the following
Y = 250
+ 450
1  0.6
Y = 700
/ 0.4
(b) Hence, the symmetry productivity level is 1,750
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