Economics (030) Class Xii (2014-15) Worksheet Page 18
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21Diagram (a) gives a straight line consumption curve.
Consumption (c) + saving (s) = income (Y)
(1)
At zero level of income, there is an autonomous consumption of OC. The corresponding
saving at this income level is (-)OC. The saving curve starts at (-)C.
(1)
At the income level OB, where the 45
o
reference line intersects the consumption curve,
C=Y. At this income level, saving in equal to zero. Thus, we get point B on the x-axis of
the saving curve.
(1)
By connecting (-)C and B, we get the saving curve.
•
At income level OB, APC = 1 as APC =
and at the income level C= Y.
(1)
•
A level of income at which APS is negative is any level of income less than OB.
APS=
and here saving is negative.
(1)
28. Cash reserve ratio is the ratio of bank deposits that commercial banks must keep as
reserves with the Central Bank.
(1)
When CRR falls, commercial banks keep lower reserves with the Central Bank. This
releases funds that were earlier held with the Central Bank for commercial banks to lend.
As lending increases, the money creation in the economy expands and money supply in
the economy increases.
(2)
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