Statement I: When income is zero, saving is equal to minus autonomous consumption (S = −C̄).
Statement II: The slope of the saving function is c, the same as the slope of the consumption function.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
Statement I: When income is zero, saving is equal to minus autonomous consumption (S = −C̄). — Correct. Saving is S = Y − C = Y − (C̄ + cY). At Y = 0 this gives S = −C̄. People still consume C̄, so they dissave by that amount.
Statement II: The slope of the saving function is c, the same as the slope of the consumption function. — Incorrect. Saving rises by 1 − c (the MPS) for each unit rise in income, not by c. Only the consumption function has slope c.
NCERT (2026-27): “4.1.1 Consumption The most important determinant of consumption demand is household income. A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes. Of course, even if income is zero, some consumption still takes place. Since this level of consumption is independent of income, it is called autonomous consumption. …” “Some Definitions Marginal propensity to save (MPS): it is the change in savings per unit change in income. It is denoted by s and is equal to 1 − c. It implies that s + c = 1.” |