Question

Marginal propensity to consume is two times more than marginal propensity to save. Autonomous consumption is Rs. 80 crores. Derive the saving function.

OR

If MPC is 0.75 and income level at the consumption level of Rs. 1,000 is Rs. 1,200, then autonomous consumption would be Rs. 200. State true or false.

Answer 1

MPC + MPS = 1
As per question, MPC = 2 MPS
2MPS + MPS = 1
3MPS = 1, MPS =$\frac{1}{2}$

Autonomous consumption $\left(C_0\right)$ = 80 crores

Standard saving equation is $S=-C_0+(1-b)Yb=MPC=-80+033Y$

OR

False, because $C=C_0+byb=MPC1000=C_0+0.75\left(1200\right)C_0=100\text{crores}$