Question

If $C=100+0.75Y$, then Saving Function will be expressed as:

• A. $S=100+0.25Y$
• B. $S=100+0.75Y$
• C. $S=100+0.35Y$
• D. $S=75+0.25Y$

Answer 1

Answer: (A)

$S=100+0.25Y$

The consumption function is C= 100+0.75Y where Y is the income at different level in the economy.

Income = consumption + savings

=> Savings = Income - consumption

=> S = Y- C

=> S = Y - ( 100 + 0.75Y)

=> S = Y- 100 - 0.75Y

=> S = - 100 + Y ( 1 - 0.75)

=> S = -100 + 0.25Y

Therefore, the saving function is S= -100 + 0.25Y where autonomous savings= -100, MPS= 0.25 and Y is income at all levels.