Question

If the value of Investment Multiplier (K) is 5, the relevant saving function would be ___________.

• A. $S = -60 + 0.25Y$
• B. $S = -60 + 0.75Y$
• C. $S = -60 + 0.20Y$
• D. $S = -60 + 0.60Y$

Hint:

Always remember: Investment Multiplier $K = \frac{1}{MPS}$. So, if you know $K$, you can easily find MPS.

Answer 1

The Correct Option is C

\[ \text{The Investment Multiplier (K) is given by}\quad K = \frac{1}{1 - MPC} \]\[\text{From this, } MPC = 1 - \frac{1}{K}.\]\[\text{Substituting } K = 5, \text{ we get } MPC = 1 - \frac{1}{5} = 0.8.\]\[\text{Given that } MPC + MPS = 1, \text{ it follows that } MPS = 1 - 0.8 = 0.2.\]\[\text{The savings function is expressed as: } S = -C + MPS \times Y.\]\text{The provided options indicate the constant term is } -60.
\text{Therefore, the applicable saving function is: } S = -60 + 0.20Y.