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 given as: \[ C = 500 + 0.8Y \] The saving function ($S$) is derived as: \[ S = Y - C \] Substituting $C$ into the equation: \[ S = Y - (500 + 0.8Y) = -500 + 0.2Y \]