Question

Suppose in an imaginary economy, autonomous consumption = Rs. 500 crore and marginal propensity to consume = 0.8. The saving function for the economy would be ________ . (Choose the correct alternative to fill in the blank):

• A. \(500 + 0.8Y\)
• B. \(-500 + 0.8Y\)
• C. \(500 + 0.2Y\)
• D. \(-500 + 0.2Y\)

Hint:

To calculate the saving function, subtract the consumption function (\(C\)) from total income (\(Y\)).

Answer 1

The Correct Option is D

The consumption function is C = 500 + 0.8Y. The saving function \(S\) is derived by subtracting consumption from income: \[ S = Y - C \] Substituting the consumption function yields: \[ S = Y - (500 + 0.8Y) = -500 + 0.2Y \]